Does Municipal Debt Pass To New Owners

Does Municipal Debt Pass To New Owners

The simple answer to this question is “no”. In the case of Jordaan and Others v City of Tshwane Metropolitan Municipality and Others [2017] ZACC 31, which was a Constitutional Court case, the Court found that municipal debt will not pass to the purchasers.

What effect does this have on the Purchasers?

As the debt is not a debt of the new home owner the Municipality cannot cut off any services.  Further, the Municipality cannot transfer the debt from the previous owner to the account of the new owner. Most importantly, the Municipality cannot attach the property to settle the debt of the previous owner in respect of municipal debt.

What About Rates Clearance Certificates?

In order for the transfer to take place, the seller has to settle the amounts owing to the Municipality, which can be the amounts incurred in the last 2 years only. If the seller has debts beyond 2 years that amount shall remain as his/her debt.

According to S118(1) of the Municipal Systems Act 32 of 2000, the Municipality must issue a Rates clearance certificate if the minimum amount has been paid, which is the debt incurred in the last 2 years.

Can The Municipality Take Judgment Against A Seller?

Yes, the Municipality has 2 options. They can either take judgment before or after the transfer of the property. If the Municipality chooses to take judgment after the transfer the option to attach the property falls away. However, if the Municipality take judgment prior to transfer, the property can be attached as per S118(3) of the Municipal Systems Act.

If the property becomes attached, the Municipality must also register the attachment at the Deeds Office, this now means that the Municipality has a secured right. The Municipality then ranks higher than the bank as secured creditor.

Should the property now be in the process of being sold, the Deeds office will not allow the transfer unless the Municipality uplifts the attachment. For sellers this means they cannot sell until the debt is paid, and for new owners this means transfer will not be effected unless the seller’s municipal debt is paid off.

Alternatively, if the Municipality does not take judgment before the transfer takes place, and the transfer is in the process, the Municipality has the option of obtaining an interdict to stop the transfer from completing. If they are successful in doing so, they would need to ensure they are successful with judgment in that period before transfer is completed, in order to secure their right to attach the property.

Therefore, if you are new owner you are safe from the worry that the Municipality might turn off your water or electricity as a result of the previous owner’s debt. However, if you are the Municipality, it is important to ensure that judgment is taken before the property transfer is finalised, or else you lose the security of attaching the property.

 

Auriella Pearl Singh

Practising Attorney