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Cape Town - Savvy home buyers know that one of the legal processes involved in taking ownership of a property is obtaining a clearance certificate from the municipality.
This is one of the functions of conveyance attorneys and is supposed to mean that the property was transferred clear of debt into the purchaser's name.
But does it really? A recent court battle between the City of Tshwane Metropolitan Municipality and a small group of property buyers has shown that protecting property buyers from historic municipal debt is not quite so clear-cut.
William Fullard of Fullard Mayer Morrison said: “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.”
So while debt going back to two years will have been paid up, many property buyers are unaware that any amount owing on that property dating from before the two-year period is still technically the responsibility of the new owner.
What's more, the government has a strong legal standing to sue the owner for these amounts, even after the property has been sold to an unsuspecting buyer.
“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,” said Fullard.
This is because legislation currently in place states that these types of unpaid 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 in this category. 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 the matter.
Attempts to label this process as unconstitutional have failed to be endorsed by the Constitutional Court. So what's an anxious home buyer to do? Michelle Dickens, managing director of the Tenant Profile Network, suggests a possible way in which buyers could protect themselves.
“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,” said Dickens.
To safeguard yourself, you can insert a specific clause to the sale agreement which would compel the seller of the property you are buying to disclose these records before your conveyance attorneys start lodging registration with the deeds office.
“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,” said Dickens.
All in all though, the issue of historical debt is an increasingly sticky matter for property governing bodies and investors alike.
This is one of the functions of conveyance attorneys and is supposed to mean that the property was transferred clear of debt into the purchaser's name.
But does it really? A recent court battle between the City of Tshwane Metropolitan Municipality and a small group of property buyers has shown that protecting property buyers from historic municipal debt is not quite so clear-cut.
William Fullard of Fullard Mayer Morrison said: “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.”
So while debt going back to two years will have been paid up, many property buyers are unaware that any amount owing on that property dating from before the two-year period is still technically the responsibility of the new owner.
What's more, the government has a strong legal standing to sue the owner for these amounts, even after the property has been sold to an unsuspecting buyer.
“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,” said Fullard.
This is because legislation currently in place states that these types of unpaid 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 in this category. 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 the matter.
Attempts to label this process as unconstitutional have failed to be endorsed by the Constitutional Court. So what's an anxious home buyer to do? Michelle Dickens, managing director of the Tenant Profile Network, suggests a possible way in which buyers could protect themselves.
“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,” said Dickens.
To safeguard yourself, you can insert a specific clause to the sale agreement which would compel the seller of the property you are buying to disclose these records before your conveyance attorneys start lodging registration with the deeds office.
“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,” said Dickens.
All in all though, the issue of historical debt is an increasingly sticky matter for property governing bodies and investors alike.
