On 29 August 2017 the Constitutional Court, through Judge Edwin Cameron, handed down a unanimous judgement in the matter of Jordaan v Tshwane Municipality. In terms hereof municipalities cannot collect outstanding property rates and services accounts incurred by previous owners from the new owners of the properties. Put more simply, new owners of properties cannot be held responsible for the previous owners’ debts.
Since March 2001, when S118 of the Local Government Municipal Systems Act, came into operation, the constitutional validity of this provision has been a point of legal contention. S118(3) states that “an amount due for municipal service fees, surcharges on fees, property rates and other municipal taxes, levies and duties is a charge upon the property in connection with which the amount is owing and enjoys preference over any mortgage bond registered against the property”.
In terms of the abovementioned Act municipalities have a number of mechanisms by means of which they can collect and recover debts due to them. Firstly the requirement for a rates clearance in every property transfer enables local authorities to make sure property accounts are up to date before ownership changes hands. Secondly municipal debts enjoy preferred status. Thirdly the contentious transmissibility of debt to the new owner of a property – this mechanism has now been interpreted and clarified.
The Constitutional Court held that a mere statutory provision that a claim for a specified debt as a ‘charge’ upon immovable property does not make that charge transmissible to successors in title of property. The new property owner as well as the new bondholders could be adversely affected if the charges were transmissible as the property may then be sold in execution to satisfy the municipal debt, with the municipality being the preferred creditor. The court ruled that, to avoid unjustified arbitrariness in violation of 25(1) of the Bill of Rights, Section 118 (3) must be interpreted so that the charge it imposes does not survive transfer to the new owner.
Chris Fick & Associates – September 2017