“It is declared that, upon transfer of a property, a new owner is not liable for debts arising before transfer from the charge upon the property …” (Constitutional Court Order)
How does the recent Constitutional Court decision on “historical rates” affect you in practice?
Understanding the issue
At issue was that some municipalities would force new property buyers to pay the seller’s “old” municipal debts (rates, municipal services etc). So you could buy a house thinking that all you had to pay was the purchase price and transfer costs, and end up having to pay old municipal debts run up by previous owners.
We’re talking potentially big money here – R6.5m in one of the cases in question. And you had to cough up or face losing your home to a sale in execution, as well as threats to disconnect electricity and other services.
Property owners 1, Municipalities 0
In a major victory for property owners, a 2016 High Court decision held that procedure to be unconstitutional. And whilst the Constitutional Court on appeal said there was actually nothing unconstitutional about the legislation in question, it also confirmed that municipalities cannot use it to collect pre-transfer municipal debts from the new owner.
So how does that decision from our highest court affect you?
Buyers
You are no longer the “soft target” for municipalities and you no longer risk having to pay the seller’s historical debts; you are only liable for rates etc after you take transfer. The other side of the coin is that municipal debt write-offs generally are bound to increase, and those losses will be passed on to us all as consumers.
Sellers
To avoid delays in transfer, keep all municipal accounts up to date. Remember you cannot pass transfer without a “clearance certificate” certifying payment of rates etc due for the past 2 years. Debt older than 2 years cannot now be claimed from the buyer so expect municipalities to be extra vigilant from now on in collecting arrear rates and service accounts as they arise. Get legal help immediately if your municipality demands payment of debts older than 3 years – rates prescribe after 30 years, but other debts survive only 3 years.
Agents
This decision has been touted as positive for the property market generally and it certainly will reassure any potential buyers holding back from making offers for fear of having to pay huge hidden municipal debts.
Municipalities
“Historical debts”, said the Court, “exist only because municipalities have not recovered them”. Every municipality is obliged to –
- “Collect all money that is due and payable to it”,
- “Implement a credit control and debt collection policy”,
- “Send out regular accounts, develop a culture of payment, disconnect the supply of electricity and water in appropriate circumstances, and take appropriate steps to collect amounts due”, and
- “For the sake of service delivery … do everything reasonable to reduce amounts owing”.
You have, in the Court’s words “a full-plated panoply of mechanisms enabling efficient debt recovery” – use them to stop arrears building up in the first place.
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