HISTORICAL DEBTS

During 2015 and early 2016 the property market was thrown into turmoil by the cases of Mitchell vs City of Tshwane Metropolitan Municipality 2015 (1) SA 82 and the appeal by the City of Tshwane in the case of City of Tshwane Metropolitan Municipality vs Mitchell in the Supreme Court of Appeal 38/2015 [2016].

In terms of Section 118 (1) of the Municipal Systems Act 2000 “The Registrar of Deeds may not register a transfer of property except on production….. of a certificate which certifies that all amounts ….. during the 2 years preceding the date of application for the certificate have been fully paid” .

Although Mitchell argued in the Court a Quo that purchasers or new owners of immovable properties cannot be penalized for historical debts preceding the 2 year period as aforementioned and initially won the Court a Quo case, the City of Tshwane took this judgment on appeal quoting Section 118 (3) of the same Act, stating that “an amount due for municipal service fees …. Is a charged upon the property in connection with which amount … enjoys preference over any mortgage bond registered against the property.”

The Court of Appeal agreed with the City of Tshwane stating that although Section 118 (1) limits the Certificate to a period of 24 months such limitation is not contained in Section 118 (3) and therefore this charged should survive transfer of the property to a new owner resulting in the City of Tshwane’s right to refuse service connection to new owners where historical debts older than 24 months are still outstanding.

The aforementioned judgment caused great uncertainty amongst new property owners as these owners could now be kept liable for the historical debts against properties never paid by the previous owners and the City of Tshwane could refuse to connect services to the newly acquired properties for the same reason.

On 7 November 2016 five cases were simultaneously heard by the High Court of South Africa Gauteng Division Pretoria under case numbers 74195/2013, 13039/2014, 13040/2014, 19552/2015 of which the main applicant and respondents were New Ventures Consulting & Services (Pty) Ltd and others / City of Tshwane Metropolitan Municipality and the Ekurhuleni Metropolitan Municipality.

In the aforementioned cases the request was for a declaratory order from the presiding Judge D S Fourie relating to the Municipality’s to render Municipal services under circumstances where there are debts outstanding in respect of the property concern beyond the 24 months period provided for in Section 118 (1) of the Municipal’s System Act 32 of 2000 (exactly the same facts being the issues of contention in the Mitchell cases.

In all of the aforementioned cases the applicants have taken transfer of the properties after a Certificate in terms of Section 118 (1) has been issued by the relevant Municipality certifying that rates and taxes during the 24 months preceding the date of application for the Certificate have been fully paid.

In all of the aforementioned cases historical debts were outstanding against the properties of which debts were incurred by the previous owners.  The City of Tshwane as well as Ekurhuleni relied on their internal policy to demand all historical debts in respect of a property be paid before entering into a service agreement with a new customer and therefore refused municipal services to the new owners as long as the debts remained outstanding and argued in accordance with the City of Tshwane Metropolitan Municipality vs Mitchell case that it creates “ a charged upon the property” contemplated in Section 118 (3).

The order of Judge D S Fourie however found otherwise:

• The City of Tshwane and Ekurhuleni were obliged upon request from the applicant to render municipal services were no debt exists in respect of the municipal services between the Municipality and the new owner.

• The Councils are not entitled to claim payment of outstanding amounts from the new owner in respect of the property concerned under circumstances where the new owner has no debt relationship with the Municipality concerned.

• Section 118 (3) of the Municipal Systems Act 32 of 2000 is declared to be Constitutionally invalid to the extent only that the security provision “a charged upon the property” survives transfer of ownership into the name of a new or subsequent owner who is not a debtor of the municipality with regard to municipal debts incurred prior to such transfer.

The aforementioned order provides clarity and will hopefully calm sentiments and fears in the market that new owners can be held liable for historical debts and it has become apparent that the courts will no longer assist the municipalities by means of statutory intervention to recoup debts caused by their own mal-administration.