Constitutional Court settles R&T arrears issue

Constitutional Court settles property rates arrears issue

When a home seller or, more commonly, their conveyancing attorney applies for a rates clearance certificate from the local council so as to be able to transfer the property to the new owner, the council is by law entitled to recover arrears only going back two years.

Municipalities unable to produce accurate figures at the time of transfer will probably have to write off the major portion of these outstanding debts, says Alexander.

Any unpaid rates incurred in earlier periods remain a “charge upon the land”, which in South Africa has until now been taken to mean that the new owner becomes liable for them, says Rowan Alexander, Director of Alexander Swart Property.

This is, however, seldom made clear to the new owner: mention is not made of historic overdue arrears in the rates clearance schedule. The new owner, therefore, often finds themselves confronted with a possibly large debt which they had not foreseen.

Quoting Robert Krautkamer of Miltons Matsemela Attorneys on this matter, Alexander says that to bring about payment of the additional arrears, the council was previously allowed in SA law to disconnect the services to the new owner or to take legal action against them. Councils could even go so far as to auction the property.

In such cases, Alexander says the new owner usually somehow found the means to pay the outstanding amount, but was then faced with the often daunting task of trying to reclaim from the seller the sums paid out.

A few months ago, however, Alexander says a case of this kind ended up in the Gauteng High Court. They ruled that such actions on the part of the council are unconstitutional, and they referred the matter to the Constitutional Court for a final decision.

This Court has now confirmed that such action is in fact unconstitutional, and must cease henceforth.

Alexander says this means councils will no longer be able to recover arrears older than two years as a “charge upon the land”. They will have to get the sums owed from the previous owner who in fact in most cases incurred the debt, and until this is achieved the new owner will not be allowed to use the property as a security for any other debt.

Alexander comments that this is a victory for all property owners: they can now feel more secure about their ownership position. He says this is also a victory for the banks as they will no longer find their mortgage bond holders suddenly facing possibly large unforeseen expenses.

Municipalities unable to produce accurate figures at the time of transfer will probably have to write off the major portion of these outstanding debts, says Alexander.