Property Buyers and Historical Debt

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16 Aug 2013

Previously, property sales transactions received the green light after specialist attorneys, known as conveyance attorneys, performed a multitude of mandatory legal processes including obtaining a clearance certificate from the municipality.

What isn’t clear to many property buyers is that any amounts due on a property which date prior to 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.

It was accepted that the clearance certificate meant the property was transferred clear of debt into the purchasers name. However, as a recent court battle between the City of Tshwane Metropolitan Municipality and a small group of property buyers has shown, protecting property buyers from historic municipal debt is not quite so clear-cut. 

William Fullard of Fullard Mayer Morrison Inc. explains that 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 full. 

What isn’t clear to many property buyers, however, is that any amounts due on that property which date prior to 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. 

Fullard says 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.

This is the result of certain legislations currently in place, which state that the aforementioned outstanding categories of municipal fees are enough to establish a charge, linked directly to the property itself, which is seen as higher priority than any other existing registered mortgage bond. 

The general trend in South African courts has seen this scenario be given what Fullard describes as a ‘statutory hypothec’ over properties falling within these circumstances. Therefore, because this type of statutory mortgage cannot be cancelled as it is essentially not possible to register it, conveyance attorneys have no way of assisting buyers in this regard.

While attempts to label this process as unconstitutional have failed to be endorsed by the Constitutional Court, Michelle Dickens, Managing Director of the Tenant Profile Network (TPN), suggests a possible way in which buyers could protect themselves. 

She says thorough research and planning are a vital standard in any case when one is looking to purchase immovable property, and ensuring that you have seen a full rates account for the property before you begin the transfer process should be a part of that research.

This, she says can be achieved by inserting a specific clause in the sale agreement which would obligate the seller of the property to disclose these records before lodging of registration with the Deeds Office is commenced by the conveyencers. 

Utilising products such as TPN’s SalesPack, which consists of all the necessary documentation and legislative guidelines required for compliance in the sale and transfer of property, she says, will provide the grounding needed for a successful transition. 

Dickens says taking a property’s current and updated records into account will ensure your decision on the purchasing of property is a better informed one, and these can be accessed through the use of in-depth sales agreements which are intended to compel the seller to disclose all hindrances and debts.

However, gathering concrete proof of these types of claims is a difficult task to say the least, further complicated by the seller’s current financial means as well as inefficiency of the relevant governmental departments, making historical debt an increasingly sticky issue for South African property governing bodies and investors.  

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