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Rates breather for PE property sellers after court ruling

Jun 01 2017 14:41

Cape Town - A landmark ruling by the Supreme Court of Appeal has freed Port Elizabeth property sellers from the obligation of paying a full year’s rates in advance to obtain a rates clearance certificate.

Greg Parker, one of the directors of Greyvensteins Attorneys, which successfully appealed on behalf of a client contesting the Nelson Mandela Bay Municipality’s (NMBM's) right to claim a full financial year’s worth of rates before issuing a rates clearance certificate, explained that the Rates Act empowers municipalities throughout South Africa to levy rates on properties.

Each municipality differs in how it interprets this law, with the NMBM traditionally insisting on rates payments being made in advance and as an annual, single payment when properties are transferred from one owner to the next. 

The precedent-setting case centred on the sale of a property in Port Elizabeth. Parker said that, prior to the transfer date of February 25 2010, the seller had requested a rates clearance certificate.

The NMBM insisted he pay rates until the end of its financial year (June 30 2010) rather than the date of transfer before it would furnish the certificate, which is essential for a legal property sale. 

“The seller paid, albeit under protest,” Parker said, adding: “Then, believing he had overpaid the municipality, he instituted legal action against it, claiming repayment based on unjust enrichment.”

When the case came to court, the court agreed with the seller, finding that he was only obliged to pay rates on the property until the date of transfer i.e. February 25 2010, after which he would no longer be the owner and could then not justifiably be expected to pay any additional rates. 

“The court also ruled that the NMBM was not entitled to withhold the property rates clearance certificate until it had received payment of the property rates for its entire financial year since rates became due from, not on the start of the financial year,” he added. 

Before the ruling, Port Elizabeth sellers were held responsible for the payment of rates until June 30 every year, despite having transferred their properties to new purchasers. 

“It’s long been standard practice contractually for the parties to agree that the purchaser would pay the rates (due by the seller) in advance. This was to ensure payment of the rates due in future and after registration of transfer,” he explained.  

“That’s a lot of money to find, and if they weren’t able to come up with the funds, the sale may well have collapsed,” he said.

“The ruling is therefore a win-win situation now for everyone: the purchaser no longer has to pay their pro rata share of the rates in full and in advance but rather monthly, the seller is no longer responsible for full rates payment in advance, and the estate agent doesn’t have to fear the sale collapsing as a result of the seller not being able to come up with the money.”

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