Home buyers, beware of old municipal debt

Home buyers often assume that once they have taken transfer of their property, all municipal debt has been paid in full and that the municipality cannot hold them liable for any further debt. It was previously accepted that the clearance certificate meant the property was transferred clear of debt into the purchaser’s name. Buyers beware, if the municipality has slipped up and omitted a debt older than two years, they can and will hold the new owner liable.

Section 118 (of the Local Government Municipal Systems Act 32 of 2000) states that a transfer of property may not be registered unless a certificate is produced in which the local municipality certifies that all amounts for municipal service fees, property rates and other municipal taxes due in connection with that property for a period of two years have been paid in ful

Any amounts due on that property which date back to before that two-year period are still technically the responsibility of the property owner and the government has a strong legal standing to sue the property owner for these amounts, even after the property has been sold to an unsuspecting buyer.

The municipality may well be entitled to have the property sold in execution – even after it has been transferred to the buyer – in order to defray these ‘historical’ debts owed by the seller. Municipalities have a ‘statutory hypothec’ over properties in these circumstances. Attempts to label this process unconstitutional have failed to be endorsed by the Constitutional Court.

In circumstances where transfer has already taken place, the buyer will have a right of recourse against the seller, but may find it prohibitively expensive and in some instances futile to pursue such claims against the seller.

The onus is on the buyer to ensure that there is no old debt outstanding before he/she buys the property. Old debt from municipalities can prescribe as follows:
1. Rates and taxes in 30 years time
2. Service and consumption charges like electricity and water consumption in 3 years time.