NEW HOME OWNERS NOT LIABLE FOR HISTORICAL DEBT, CONCOURT RULES

30 Aug 2017

In several newsflashes since last year, we reported on developments surrounding the thorny issue of arrears rates accounts, and who is liable for these, after transfer of immovable property, where the local authority fails to include this in its rates clearance schedule.


By way of brief reminder, when we apply for rates clearance figures from council to effect transfer, the law states that council may only actually recover arrears going back as far as two years, and that (at least theoretically), anything older than two years remains a “charge upon the land”. This then exposed the new owner to disconnection or even legal action, to recover that said arrears, by way of publicly auctioning off the land. The new owner would then be saddled with trying to save the property from auction by paying the arrears and then trying to recover this from the former owner.


This ended up in a High Court in Gauteng several months ago, where the court ruled that this was unconstitutional and it was then referred to the Con Court for final decision.


We are pleased to share with you, that the Con Court has now confirmed that this law is indeed unconstitutional. This therefore means in simple terms, that once council issues a rates clearance certificate, council can no longer recover any arrears older than two years, as a “charge upon the land”. Council will now have to recover this from the previous owner, and will not be allowed to use the property as security for the debt.


The decision is a victory for property owners, and for the banks, as the rights of the municipalities were previously interpreted to be preferrent to the holders of mortgage bonds registered after transfer. The decision will however place an additional burden on municipalities where their accounts are in disarray, and where they are unable to produce accurate figures of amounts owing at the time of transfer before issuing a rates clearance certificate. These municipalities will now most certainly have to write off a larger portion of this historical debt.