How the “Historical Rates” Judgement Affects You

It is declared that, upon transfer of a property, a new owner is not liable for debts arising before transfer from the charge upon the property …” (Constitutional Court Order)

How does the recent Constitutional Court decision on “historical rates” affect you in practice?

Understanding the issue

At issue was that some municipalities would force new property buyers to pay the seller’s “old” municipal debts (rates, municipal services etc). So you could buy a house thinking that all you had to pay was the purchase price and transfer costs, and end up having to pay old municipal debts run up by previous owners. We’re talking potentially big money here – R6.5m in one of the cases in question. And you had to cough up or face losing your home to a sale in execution, as well as threats to disconnect electricity and other services.

Property owners 1, Municipalities 0

In a major victory for property owners, a 2016 High Court decision held that procedure to be unconstitutional. And whilst the Constitutional Court on appeal said there was actually nothing unconstitutional about the legislation in question, it also confirmed that municipalities cannot use it to collect pre-transfer municipal debts from the new owner. So how does that decision from our highest court affect you?

Buyers

You are no longer the “soft target” for municipalities and you no longer risk having to pay the seller’s historical debts; you are only liable for rates etc after you take transfer. The other side of the coin is that municipal debt write-offs generally are bound to increase, and those losses will be passed on to us all as consumers.

Sellers

To avoid delays in transfer, keep all municipal accounts up to date. Remember you cannot pass transfer without a “clearance certificate” certifying payment of rates etc due for the past 2 years. Debt older than 2 years cannot now be claimed from the buyer so expect municipalities to be extra vigilant from now on in collecting arrear rates and service accounts as they arise. Get legal help immediately if your municipality demands payment of debts older than 3 years – rates prescribe after 30 years, but other debts survive only 3 years (unless of course prescription is interrupted by for example an admission of liability or the service of a summons).

Agents

This decision has been touted as positive for the property market generally and it certainly will reassure any potential buyers holding back from making offers for fear of having to pay huge hidden municipal debts.

Municipalities

“Historical debts”, said the Court, “exist only because municipalities have not recovered them”. Every municipality is obliged to –
“Collect all money that is due and payable to it”,

“Implement a credit control and debt collection policy”,

“Send out regular accounts, develop a culture of payment, disconnect the supply of electricity and water in appropriate circumstances, and take appropriate steps to collect amounts due”, and

“For the sake of service delivery … do everything reasonable to reduce amounts owing”.

You have, in the Court’s words “a full-plated panoply of mechanisms enabling efficient debt recovery” – use them to stop arrears building up in the first place.

Selling Property this Festive Season? 3 Tips for a Smooth Transfer

The Festive Season can be a great time to sell a property and to buy it. Warm weather, sunny gardens and bright rooms, lots of holidaying visitors, and more time on your hands generally all help to stimulate the property market. Just bear in mind that, Summer Holidays or not, whether you are selling a property or buying one, you want the whole process to be handled professionally and smoothly, with as little delay as possible. After all, both of you are dealing with what is probably one ofyour most important assets.

Here are some tips to help you achieve that smooth and hassle-free transfer –

  1. Choose the right conveyancer

Central to ensuring that all goes well is the choice of which conveyancing attorney you nominate to carry out the specialist task of transferring the property from the Seller’s name to the Buyer’s. Choosing a conveyancer is one of the things that is technically up for negotiation, but as a seller, you should always insist on making the choice. Why? You carry more risk than the buyer who, having to raise the purchase price within an agreed time period is more likely to default or cause a delay in the process than you are. Moreover, it is your asset – your house – at stake, so it makes sense to have your own attorney directing the process and ensuring that the purchase price is fully paid or secured. The fact that the buyer invariably pays the costs of transfer isn’t relevant here. A nervous buyer can always appoint his or her own attorney to keep a watching brief on the transfer, although – unless and until a dispute arises – that really shouldn’t be necessary seeing that conveyancers have a professional duty of care to act fairly to both parties.

Bottom line – as a seller, choose an attorney you can trust to act with speed and integrity. And don’t be persuaded by anyone to give up your right to do the nominating!

  1. Avoid any possible uncertainty

Clearly record your choice of attorney in your written sale agreement. Otherwise, you could be opening the door to dispute. That’s true for all provinces but is a particular risk in KZN where historically the buyer had the choice if the agreement was silent on the matter (the current legal position on that is uncertain).

  1. Bring your attorney into the picture from Day One

Sellers, in particular, should remember this basic principle – agree to nothing (verbally or in writing) until your lawyer has checked it out foryou! A lot can go wrong with property sales, from your initial choice of who to appoint to find a buyer for you, through to the wording and signing of the agreement of sale itself.

Our law reports are bursting at the seams with bitter, expensive and disruptive legal disputes which could have been avoided had the parties sought legal assistance before putting pen to paper.