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Uncertainty still hangs over old municipal property debt

City of Tshwane and Ekurhuleni Municipality plan to fight a groundbreaking municipal debt judgement at ConCourt.

The victory of property owners in a recent landmark Pretoria High Court judgement that confirmed that they were not liable for a previous owners’ municipal debt has been short-lived, as the City of Tshwane and Ekurhuleni Municipality has approached the Constitutional Court for an appeal.

The High Court judgment was great news for the residential and commercial property market.  

Until the Constitutional Court hears these appeal, which is likely to be delayed for a long time, municipalities may hold new owners liable for the old owners’ debts and subject to them to meeting certain jurisdictional requirements, such as complying with their by-laws and credit control measures before they can attach the property for non-payment.

This also means that the shocking City of Tshwane vs Peregrine Joseph Mitchell Supreme Court of Appeal (SCA) judgement in February remains in effect. Read about the matter here.

As New Ventures Consulting and Services, a municipal debt specialist (MDS), we understand that certain municipalities are persisting in holding owners liable for the historical municipal debt.

New Ventures Consulting and Services has been pioneering litigation against the municipalities regarding the correct implementation of Section 118 of the Municipal Systems Act, since 2002. This Act includes a security provision for historical debt to be incurred by the new owner.

At that stage, municipalities conflated section 118 (1) and (3) and refused to issue a clearance certificate during the sale of a property until all the debts had been paid. Fortunately, this misinterpretation regarding section 118 (1) was resolved by the courts.

This clarity resulted in New Ventures Consulting and Services and various municipalities developing a solid working relationship that operated successfully regarding old municipal debt until the City of Tshwane vs Mathabathe judgment was handed down in 2013.

City of Tshwane vs Mathabathe judgment

In this matter, the City of Tshwane asked the courts to order a transferring attorney to issue an undertaking that the historical debt would be paid before and/or on a property’s registration.

The SCA subsequently ruled that the municipality was not entitled to this undertaking and that it enjoyed constitutional protection as a creditor ranking it ahead of the mortgage holder. For some inexplicable reason, several municipalities misinterpreted this judgment and relied on it to transfer the old owners’ debts to the current owners.

 Unlawful actions start

A number of Livanos Group properties and our MDS clients were affected by the various municipalities’ new strategic approach of ‘creative debt collection’, that effectively meant that new owners were refused a consumer’s agreement or had their electricity supply terminated until they had settled the old owners’ debt.

New Ventures Consulting and Services was appointed on these matters to audit the municipalities’ claims and ensure that the correct amount was paid. We established that the municipalities’ claims were based on the old owners’ debts.

Pretoria High Court judgement

Having exhausted all other avenues, New Ventures Consulting and Services applied to the High Court for relief, and a judgment was handed down by Judge Dawie Fourie last month.

Judge Fourie ruled that it is unlawful for a municipality to:   

  • refuse a consumer’s agreement on the grounds of the old owners’ debts;
  • terminate the services including electricity, water, and waste removal of the new owner on the grounds of the old owners’ debts.

Judge Fourie also ruled that:

  • to the extent that the municipalities interpreted section 118 (3) to give them this right, this section is declared unconstitutional; and
  • the judgment be referred to the Constitutional Court for confirmation. 

Read full judgement here.

Our advice

Our company’s policy remains that when a property is being transferred, all parties (buyer, seller and transferring attorney) need to ensure that all the debt owed on the property is paid (not only the debt paid in order to obtain a clearance certificate, but the historical debt as well). 

We are not suggesting that any arbitrary amounts claimed by the municipality get paid, but rather that only the correct and lawful amounts are paid to the municipalities.

We further advise that if anyone pays the municipality under duress, it is imperative that they formally pay under protest. We believe that when the Constitutional Court agrees with us, the municipalities will have to refund ratepayers accordingly.

Livanos is the managing director of New Ventures Consultancy & Services.

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They have not a chance to succeed and it should not be allowed.

Common sense tells one that one person cannot be held liable for another persons debt. However, if the debt is not collected, then all others living in the municipality in effect pay that debt. The fault lies with the municipality for allowing the debt to accumulate. It may not always be easy to collect the debt, as the debtor may own few assests but it is where the problem lies. One cannot address the problem somewhere else.

Why would a municipality want to do this? It can only be that it is lying through its accounting methods for unsustainable debt that should have long since been written off.

This kind of behaviour from ANC led municipalities is something we had got used to and even expected. But from the DA? They will face a ruckus and lose a lot of credibility.

A buyer should not be held accountable for the seller’s debts. This is standard and as a safeguard when a business is bought a clause to this effect is inserted in the agreement of sale. Surely an agreement of sale for a house can have such a clause added?

I guess the DA are trying to recover debts allowed by the previous, corrupt regime. This is to try and stave off the financial disaster created by the previous, corrupt regime. lol.

EVERY DA VOTER COUNTRY-WIDE TO E-MAIL THE DA AND OBJECT AND IN THE MUNICIPALITIES INVOLVED THE COUNCILLORS MUST BE FLOODED WITH IRATE MESSAGES TOO. THEY MUST STAND DOWN AND ACCEPT THE PRETORIA HIGH COURT JUDGEMENT!!!

Makes a mockery of their own ‘Clearance Certificates’which we pay dearly for.
Absolute joke!

Classic delaying tactic. The Municipalities know their appeals to the Constitutional Court do not stand much of a chance but in the interim it’s “business” as usual.

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