Municipal debt issue argued in top court
The Constitutional Court was asked yesterday to confirm the Gauteng High Court (Pretoria) order last year that a new owner cannot be held liable for the water‚ rates and lights debts of the old owner or owners, notes a TimesLIVE report. The Tshwane and Ekurhuleni municipalities argue that the municipal debts belong to the property and municipalities can sell a house to recover the debt dating back up to 30 years.
The High Court found against the municipalities and called their plan to seize properties for debts of a previous owner an ‘arbitrary deprivation of property’ in terms of section 25 of the Constitution and found this was unreasonable and unjustifiable.
Also admitted as friends of the court were The TUHF Limited‚ a public company that provides investors with funding for the refurbishment of inner city properties in Ekurhuleni‚ Tshwane and elsewhere‚ and The Banking Association of SA. A spokesman from TUHF says it would be ‘catastrophic’ to the property industry if new owners had to lose their homes to pay old debts from previous owners.
TUFH also argued the municipality needs to recover debt sooner and use measures such as discontinuing lights and water or suing the person liable for debt rather than waiting years and seizing property from a new innocent owner.
The Banking Association‚ a friend of the court‚ also argued that if municipalities could seize properties it would affect the security of mortgages given by banks. Banks can lend large sums of money to people to buy property‚ because banks are able to take back the property if the mortgage is not paid. If the municipality could claim properties‚ it means banks have no surety for lending money for property.
At the heart of the appeal is the interpretation of section 118 (1) and (3) of the Act. The Act includes a security provision for historical debt to be incurred by the new owner, which municipalities used in their refusal to issue a clearance certificate during the sale of a property until all debts had been paid, notes a Moneyweb report.
David Unterhalter SC, who represents New Ventures Consulting & Services, argued that sections of the Act don’t explain the type of liability that can be charged to a new owner and the duration of the security enjoyed by municipalities to claim old debt. ‘How can a new owner be burdened with a debt that he has absolutely no connection to? It means that people who acquire properties can lose their homes because of the charge while the municipality chooses its preferential rights (to claim old debt),’ Unterhalter told the court. In court papers, Tshwane has argued that it doesn’t have personnel or resources to monitor and collect old debt from existing owners. And municipalities have argued that once a buyer of a property is aware of historical debt, he/she has several options. ‘They may choose not to enter into the transaction (to purchase a property) or negotiate for the reduction of the debt. It’s not true that new owners have no remedy,’ said Terry Motau SC, who represents the Tshwane municipality. Motau said bylaws and municipality policies on sale agreements would need to be amended if the High Court’s judgement was upheld. This argument was also supported by the Minister of Cooperative Governance and Traditional Affairs Des van Rooyen. Judgment was reserved.
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