The Constitutional Court has ruled that municipalities cannot hold a new property owner liable for a previous owner’s historical municipal debt. A Moneyweb report says the precedent-setting ruling gives relief to home and business owners, who have been saddled with years of historical municipal debt – as long as 20 years – and have been denied municipal services until the debt had been paid.

In a ruling written by Justice Edwin Cameron, the court upheld a decision by the Gauteng High Court (Pretoria) in November last year. The report says at the heart of the appeal was the interpretation of section 118 (1) and (3) of the Municipal Systems 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.

Jordaan and Others v City of Tshwane Metropolitan Municipality and Others

The judgment has helped bring clarity in the property sector, says a Business Day report. Section 118 (3) provided that ‘an amount due for municipal service fees, surcharges on fees, property rates and other municipal taxes, levies and duties is a charge upon the property in connection with which the amount is owing and enjoys preference over any mortgage bond registered against the property’.

The 2013 High Court judgment led certain municipalities to take the Act to mean new buyers took over historical debt on properties on purchase as the Act stipulates only that a clearance certificate can be issued if the outstanding debt is paid in full for the two years preceding the date of sale.

The Constitutional Court did not find it necessary to declare the section invalid, as it was capable of being interpreted so that the charge on the property did not survive the property transfer to the new owner.

Cameron said the Bill of Rights prohibited arbitrary deprivation of property, which would happen if debts without historical limit were imposed on a new property owner. To avoid contravening section 25 of the Constitution, section 118 (3) of the Act must now be interpreted so that the charge it imposes does not survive transfer to a new owner. The judgment made it clear that all outstanding debts could be recovered as a charge against the property by municipalities before the sale, since there was a provision placing a municipality on notice that a transfer in its jurisdiction was pending. Cameron said the provision embargoed each and every transfer until the municipality issued a clearance certificate for the last two years’ debt. He said that prospective transferors and their attorneys were obliged to notify municipalities of every impending transfer.

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The City of Tshwane welcomed the judgment. A TimesLIVE report notes that Cilliers Brink‚ MMC for Corporate and Shared Services in Tshwane‚ said the Constitutional Court judgment gave clarity on two crucial issues. ‘First‚ new property owners cannot be held liable for historical municipal debts incurred on such properties. Second‚ this principle can be upheld without declaring section 118 (3) of the Municipal Systems Act unconstitutional‚’ Brink said. Brink said the city would be studying the judgment in the next day or two‚ and explain how the city would give effect to the court’s judgment.

Full TimesLIVE report

Property debt specialist Peter Livanos said he would be meeting his legal counsel to see what steps could be taken by property owners to recoup their money. According to a Cape Times report, Livanos – who among others took the case to the Constitutional Court – said he had spent about R11m in legal costs since 2000. ‘I had four counsels on a permanent basis and was forced to go to court over and over again over the years to get transfer of properties and connection of services because the municipalities were demanding that this historic debt be paid before transfer could be effected and before connecting services,’ he said. Livanos added he could not quantify the amount of money paid over in old debt, but said he had been receiving about 30 calls a week from attorneys all over the country. ‘Recently, however, most municipalities complied because of the pending Constitutional Court case,’ he said.

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Livanos says the practice was far more widespread than Tshwane, Ekurhuleni and eThekwini who were part of the court case as he receives calls daily from distressed homeowners, according to a Beeld report. Aidan Kenny, director of Werksmans, described the judgment as a ‘victory for owners and financial institutions’ as the latter now have peace of mind that there cannot be another claim on their secured asset under finance.

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