Advice and Opinion

Prospective property buyers beware: Unpaid municipal debts will be transferred to the new owner

The whole issue of who is responsible for long-standing municipal debts when properties are transferred has been raised time and again in the South African courts, says Tony Clarke, Managing Director of the Rawson Property Group. 

“Traditionally,” said Clarke, “the position has been that the seller or buyer has only to pay the last two years of outstanding debt to be issued with a Rates Certificate, without which transfer cannot legally take place. This means of pressurizing sellers into meeting their outstanding debts has proved effective in bringing them at least partially up-to-date on their payments, but it still leaves the new owner with the problem of who is responsible for longstanding unpaid debts.”

The two year payment provision, said Clarke, was upheld in September 2008 when Judge Blieden of the Johannesburg High Court ruled that Counsel had no right to withhold Rates Clearance Certificates on account of debts going back longer than two years and this approach was confirmed by the High Court of Cape Town and later by the Supreme Court of Appeal, which, incidentally, also ruled that all documentation relating to the two year debt had to be produced.

“Now, however, a third case (Tshwane Municipality vs. Thomas Mathabata) has ruled that even when the two year payment is met, debts on properties going back longer than two years can be transferred to the new owner. Furthermore, the municipality has the right to attach the property and sell it in execution to achieve payment of those debts.”

This ruling, said Clarke, puts new owners in a very difficult position and they have to be warned publicly that from now on it will be essential for sellers to guarantee, in writing, that all debts owing on the property have been paid prior to transfer. This clause, he said, should now be included in all sales agreements.

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