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New judgment rules that property owners are not liable to pay for rates and taxes incurred

23 October 2014   (0 Comments)
Posted by: Authors: Andrew Bembridge and others
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Authors: Andrew Bembridge, Len Vorster and Fritz Schulz (ENSafrica)

New judgment rules that property owners are not liable to pay for rates and taxes incurred by previous owners

Municipalities have recently been claiming rates and taxes and other charges from owners of properties, who were not the owners of the properties on the date that the rates and taxes and other charges were incurred. This creates difficulties and uncertainties within the property market as to whether, following transfer of a property, the rates and taxes and other charges may have been considered to have been paid to date.

In the past, a rates clearance certificate would be issued by the municipality certifying that all amounts due under in connection with property have been paid. This certificate would be relied on by purchasers of property, that indeed all such amounts have been paid.

However, due to inefficiencies within municipalities, it appears that amounts due on the property are not always accounted for when an amount is given as payable for a clearance certificate to be issued. Following a wrong interpretation of a judgment in the case of City of Tshwane v Mathabathe, the municipalities have seized upon the opportunity to require owners of properties to pay for rates and taxes and other debts not incurred by them, but by a previous owner.

The Mathabathe Case correctly held that the municipalities have a lien (the right to keep possession of property belonging to another person until a debt owed by that person is discharged) against the property for debts due to them. However, the Court, did not go so far as to suggest that a successor in title to a property was liable for the debts of a previous owner of the property. Some municipalities nevertheless interpreted this to mean that a property owner is liable for the debts of his predecessors in title because of the lien.

If the interpretation of the municipalities was correct, then, apart from the injustice of it all, the practical consequences would be that property owners would never have peace of mind when taking transfer of a property that all rates and taxes had been paid to date, or if they had not been paid, they are immune from the municipality proceeding against them for debts incurred by a previous owner. Similarly banks and other lenders to property owners would never have the certainty that a rates clearance certificate indicated that all rates and taxes have been fully paid, or if not paid, that the municipality would proceed against the current owner of the property for debts incurred by a previous owner. 

Fortunately, the Gauteng Division of the High Court has now confirmed that the interpretation of the municipalities is incorrect in handing down a judgment in the matter of Perregrine Joseph Mitchell v City of Tshwane Metropolitan Municipality. The judgment, handed down on 8 September 2014, said the following:

  • A successor in title to a property does not become a co-principal debtor regarding the principal debt to the municipality and is not liable for the payment of historical debts incurred by previous owners or occupiers of the property. In other words current owners are not liable for the debts of previous owners;
  • The security of the lien held by the municipality was extinguished by the transfer of a property to a subsequent owner;
  • The outstanding debt owing by the previous owner, remains owing by that owner. It is unaffected by the transfer of the property to a new owner. So it remains due by the owner that incurred the debt to the municipality.

Accordingly, unless and until this judgment is reversed, the equitable situation, as property owners would reasonably expect, has been restored. Any person who has been forced to pay a debt incurred by a previous owner should immediately be refunded by the municipality concerned. In this regard, property owners are advised to contact their legal representatives or SAIT tax professionals for further assistance.

This article first appeared on ensafrica.com.


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