Selling your home? Don't forget to budget for advance municipal rates

24 May 2017

When it comes to selling a property, many homeowners know that they need to budget for the inspections and fees necessary to obtain the various Certificates of Compliance, the ones applicable in most provinces being for electrical wiring, electric fences and gas. In Cape Town, sellers also need certificates for beetles and water installations.

This is according to Bruce Swain, CEO of Leapfrog Property Group, who says what sellers may not realise is that they also need to budget to pay municipal rates and taxes in advance to cover costs while the property transfer is being completed.

“Normally transfer takes about three months, which is the amount most municipalities will charge upfront before issuing the vital rates clearance certificate, without which a property cannot be transferred to the buyer,” says Swain.

“Sellers need to keep in mind that they’ll need to budget for the rates clearance costs, as well as the various Certificates of Compliance - and any renovations or alterations required to obtain those. This is especially critical if it’s an emergency sale due to financial constraints, or the sellers are simultaneously buying another property, which could affect their cash flow in the short term.”

What if the municipality requires more than three months’ payment?

“As stated, it’s common practice for municipalities to ask for advance rates payments to cover the transfer period, which is normally about three months for residential properties,” says Swain.

“However, in some cases the local municipality might ask for payments to cover a longer period, preferring to refund any extra fees rather than trying to collect them from the seller at a later date.”

In a recent case involving the Nelson Mandela municipality, Swain says Amber Mountain Investments 3 was asked to fork out R1 million - the estimated rates for one year - before the municipality would issue the rates clearance certificate.

Swain says the Supreme Court of Appeal has ruled on the matter, stating that municipalities cannot demand that property sellers pay in advance for many months of rates before issuing the certificate.

“The ruling now vests sellers with the right to refuse to pay rates and charges for any amount in advance beyond the date of the certificate when applying for a rates clearance certificate,” says Aidan Kenny, director and property specialist at Werksmans Attorneys.

He says it also imposes an obligation on municipalities to change their policy to comply with the various acts applicable, forfeiting their right to collect advance rates and charges due in future prior to issuing a rates clearance certificate.

“Leapfrog Property Group supports this decision - very often there is a huge time delay where municipalities have to refund rates paid in advance, and the whole approach inhibits the property sales process,” says Swain.

“Avoiding this kind of situation will not only speed up the transfer process, but will also ease the financial burden - and administrative hassle of getting a refund - on sellers.”