Buyers may pay seller’s council debts

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09 Jul 2013

Prospective buyers and mortgagees of property must ensure that all arrear municipal charges are paid by the seller before purchasing, taking transfer of or bonding the property, says Fritz Schulz, director at Norton Rose Fulbright South Africa.

Prospective buyers and mortgagees of property must ensure that all arrear municipal charges are paid by the seller before purchasing, taking transfer of or bonding the property, says Fritz Schulz, director at Norton Rose Fulbright South Africa.

He says in the appeal court matter between Tshwane vs Mathabathe and Nedbank, the court concluded that the Local Government: Municipal Systems Act contains two principal elements that assist municipalities with the collection of municipal charges.

Firstly, the act provides that a registrar of deeds may not register the transfer of property unless a certificate is produced that all amounts due in connection with that property for municipal service fees, surcharges on fees, property rates and other municipal taxes, levies and duties during the two preceding years have been paid in full.

Secondly, the act provides that all amounts due to the municipality (even beyond the two year period) are a charge against the property that enjoys preference over any mortgage bond over the property.

This potential risk extends to the mortgagee of the property because the rights of the municipality will rank prior to that of the mortgagee, he says.

The municipality does not lose this charge against the property upon registration of the property in the name of the new owner.

“On this interpretation, inconceivable as it may seem, it may be possible for a municipality to enforce its rights in relation to historic debt against a property where the property was transferred to a person that was not responsible for incurring the debt.”

 An owner could therefore face the sale of a property in execution to settle municipal debts incurred by a previous owner.

He adds that would-be home buyers and mortgagees of property must therefore ensure that all arrear municipal charges are paid before taking or consenting to transfer or bonding a property, not only those charges for the preceding two year period.

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