Inherited debt woes for owners

 

  • The Mercury
  • 16 Feb 2016
  • Anna Cox Thami Magubane

PROPERTY owners face the grim prospect of owing huge sums of money to municipalities in debt incurred by previous owners dating from up to 30 years ago.

This is the view of attorney Chantelle Gladwin, who specialises in commercial and residential property practice and litigation, following what she calls “catastrophic implications” of a Supreme Court of Appeal judgment handed down at the end of last month.

The judgment ruled that new property owners could be held liable for historic debts dating from 30 years back. Given that about 326 000 properties are bought and sold a year, this could have a drastic effect on the market.

As the law stood before, a seller was liable only for debts incurred over the past two years for electricity, water and other services, and 30 years for rates in terms of section 118 of the Local Government Municipal Systems Act to obtain a clearance certificate.

Liable

The appeal court case involves a matter between the City of Tshwane and Peregrine Joseph Mitchell, who bought a property in 2013.

He was told he had to pay R232 828 for a clearance certificate, but he claimed that in terms of section 118, he was liable to pay only R126 600 for debt due for the past two years.

He obtained the certificate and later resold the property. However, the city refused to connect services for the new owner, claiming there was historical debt of R106 200 owing.

The matter went to the Gauteng division of the high court, which found that new owners were not liable for the historic debt.

This then went to the appeal court, which held that the hypothec, or lien, that existed in favour of the local municipality to secure amounts owing by the owner of a property to that municipality for rates and services was not extinguished by transfer of the property from the owner who incurred the debts.

This finding, said Gladwin, was based on the court’s interpretation of section 118, as interpreted against the backdrop of the South African common law relating to hypothecs.

“The implications for property owners are huge. This means that a municipality can take legal action against the present owner of a property for any other amounts owing by any previous owner.

“This action can range from suing for the old owner’s debts and attaching and selling the property itself,” Gladwin said.

“This has major implications for banks as well, because the municipality would take the proceeds of the sale of the property to settle whatever is owing, and then only anything remaining would be paid to the bondholder, and thereafter to the owner.”

Gladwin said that given the problems municipalities had with incorrect billing, faulty meters, incorrect meter numbers, illegal electricity and water connections and meter tampering, it could be a nightmare for new owners as they would be unable to prove anything going back a number of years.

The same problem existed for the property rates.

“If an owner was being charged rates based on an incorrect valuation, and five or six years after selling the property, the result of a review of the property valuation that applied to the previous valuation roll was that it was undervalued by several million, this could result in the new owner receiving a rates bill of several hundreds of thousands of rands for rates that should have been billed to the old owner,” she said.

There was very little that the new owner could do, other than contact the old owner, who might be dead, have left the country, have not kept any records, or have destroyed records older than a few years.