Real Estate Investor Magazine South Africa July 2016 | Page 30

LEGAL Liability for Historical Municipal Debt When is a tenant accountable for outstanding debt? BY MARLON SHEVELEW I n a recent editorial published in the Cape Argus, the chairman of Rawson opined that “homebuyers, banks and tenants all need to take action to protect themselves against the effects of the recent Supreme Court of Appeal (SCA) judgment that property owners can be held liable for historical municipal debts dating back up to 30 years.” Although no citation is included, the context reveals that the article refers to the judgment of City of Tshwane Metropolitan Municipality v Peregrine Joseph Mitchell, in which the SCA interpreted section 118 of the Local Government: Municipal Systems Act No 32 of 2000. It would be entirely unreasonable for a municipality to attempt to enforce a long-standing pre-existing electricity debt against a tenant who patently did not live at the property the time charges factually accrued Briefly, section 118 provides that a registrar of deeds may not register the transfer of property, except on production of a certificate – commonly referred to as a ‘clearance certificate’ – confirming that all amounts due to the municipality, in respect of that property for service fees, levies, rates and taxes for the two years preceding the date of application for the certificate, have been paid in full. 28 JULY 2016 SA Real Estate Investor The editorial correctly states one of the Court’s conclusions to be that the transfer of a property into the name of a new owner does not extinguish the hypothec created by section 118(3) of the Act in favour of the municipality, which means that nothing would prevent the municipality from obtaining a court order, selling the property concerned in execution and applying the proceeds to pay off the outstanding historical debt. In such an instance, so the court reasoned, “the [new owner] might be forced to pay the debt in order to avoid losing his property [and] it is in that sense that the respondent, as owner of the property, could be said to be liable for the historical debt.” The correctness of this interpretation is debatable, and, for the same reasons given in the editorial, the constitutionality of the provision needs to be conclusively assessed as a matter of urgency; however, for various reasons, I do not entirely agree with the author’s added deduction as to the import of the judgment, namely that “tenants . . . could be negatively affected by the SCA decision . . . [and] . . . our advice to them would thus be to . . . sign a lease only on condition that they are indemnified against any claim for historical municipal debt.” I imagine the writer bases this hypothesis on the SCA’s reference to one of the City of Tshwane’s electricity by-laws, which provides that “the consumer is liable for all electricity supplied to his or her premises.” The by-law defines ‘consumer’ as “the occupier of any premises to which the Municipality has agreed www.reimag.co.za