In a boon for the property market, the Supreme Court of Appeal has ruled that municipalities that demand property sellers pay many months of rates, fees and charges prior to issuing a rates clearance certificate to transfer the property, may no longer do so.
Aidan Kenny, Director and property specialist at Werksmans Attorneys, said “This is good news for the property market when you consider municipalities were often demanding sellers pay up to a year’s rates, fees and charges in advance prior to issuing a rates clearance certificate.
“It can add up to a large number at a time when people are often financially stretched.”
Right to refuse to pay rates
The ruling was delivered on 29 March 2017 in the case of Nelson Mandela Bay Municipality v Amber Mountain Investments 3 (Pty) Ltd. The Supreme Court of Appeal had to decide whether the Municipality was correct in requesting advance payments of rates for a year in advance by the seller in order to obtain rates clearance to transfer the property.
Kenny said, “The ruling now vests sellers with the right to refuse to pay rates and charges for any amount in advance beyond the date of the certificate when applying for a rates clearance certificate.
“It also imposes an obligation on municipalities to change their policy to comply with the various acts applicable, forfeiting their right to collect advance rates and charges due in future prior to issuing a rates clearance certificate.”
Seller can claim the funds back
To transfer a property, the Registrar of Deeds must be provided with certain documents. This includes a rates clearance certificate issued by the Municipality in terms of Section 118 of the Local Government: Municipal Systems Act 32 of 2000 (the Systems Act) confirming the rates due to the Municipality, has been paid to enable the Registrar to effect transfer of the property from the seller to the purchaser.
“In practice, a computer application for a rates clearance certificate is generated and the municipality issues figures which must be paid prior to issuing of the Rates Clearance Certificate.
“Certain Municipalities issues figures which include rates and charges which are payable for 12 months in advance. Once transfer is made then the seller can claim the funds back from the municipality in respect of the sale after he ceases to be an owner of the property, ” added Kenny.
Kenny noted the court had regard to various Acts, namely Local Government: Municipal Systems Act 32 of 2000, Local Government: Municipal Property Rates Act 32 of 2000, Local Government: Municipal Finance Management Act 56 of 2003.
It held that a rates clearance certificate is issued in respect of debt, which has become due and payable in the two years, preceding the date of the application for the certificate – not future municipal debt.
The court also held that to this extent the Municipality’s policy is inconsistent with Section 118(1) of the Systems Act and such policy is void to the extent that it is in conflict and invalid.