Court relief for property purchasers

‘Historic’ municipal debt ruling

YESTERDAY’S Constitutional Court ruling that prospective property buyers were not liable for “historic” municipal debt for rates and services, was a victory for estate agents and property developers.

“This should teach municipalities to strengthen their rates and services revenue collection techniques,” said Geoff Perkins, director of property developers Collins Residential.

He said he was delighted with the court outcome.

“It is completely logical, reasonable and fair for a new property purchaser not to be liable for potential debts incurred by the previous owner.

“The fact that a municipality has been enforcing this policy to date is astounding to say the least. This is a positive step for the property market as a whole because it has the potential to stimulate the firsttime buyer market, which may have been more cautious before this ruling,” Perkins said.

The Concourt ruled that new property owners were not liable for municipal rates and services debts incurred by previous owners.

The ruling, by Justice Edwin Cameron, came after Tshwane and Ekurhuleni municipalities sought to overturn last November’s high court decision that absolved new property owners from historic municipal debt.

The eThekwini Municipality was admitted as a “friend of the court”.

The matter was brought to the high court after Tshwane and Ekurhuleni suspended the supply of municipal services to at least 13 applicants’ properties.

Richard Grey, Harcourts Africa chief executive officer, said the ruling was a relief to estate agents and prospective property buyers.

“This shows that municipalities should start having their controls in place to ensure the collection of debt in rates and services. How can someone be responsible for another person’s debt?” Grey asked.

According to the ruling, Section 118(3) of the Local Government: Municipal Systems Act of 2000 was constitutionally invalid. This section provided that new owners of a property still owing money for municipal services rendered to the previous owner, were liable for the bill.

Before Concourt, Tshwane, Ekurhuleni and eThekwini Municipality contended that a proper construction of Section 118(3) was that the charge survives transfer.

The court held that the municipalities should pay the applicants’ costs.

Gary Nichols, spokesperson for the Institute of Estate Agents of South Africa, said the ruling should be a wake-up call for municipalities to “get their house” in order.

“Why should a property buyer be responsible for debt incurred by the previous owner? Failure by municipalities to collect their dues should not be the new owner’s problem,” Nichols said.

Asked how they dealt with prospective buyers if a property had an outstanding municipal debt, Nichols said they informed buyers if an outstanding debt existed.

“This ruling will make our lives easy. It will put pressure on the transfer attorneys because they will have to ensure that there are no outstanding debts on properties on sale. On the other hand, municipalities will have to ensure that owners pay their dues,” Nichols said.

Late yesterday Krish Kumar, the city’s deputy city manager of finance, said he had just received the judgment and was still waiting for legal opinion.

Later, municipal head of communications, Tozi Mthethwa, said the judgment did not impact on eThekwini Municipality’s collection processes. Instead, it provided clarity to strengthen the process.

“eThekwini Municipality adheres to the guidelines set by the credit control and debt collection policy and by-law, and will continue to collect outstanding debt accordingly,” she said.