I have a question to ask of other conveyancers who practice in different parts of the country and will pose my question at the end once I have set the scene.
Before a transfer may be registered in any Deeds Registry in South Africa a Conveyancer has to present a clearance certificate issued in terms of Section 118 (3) of the Municipal Systems Act No 32 of 2000 to the Deeds Office. Before such a certificate is issued all municipalities require payment of, not only current and arrear rates (up to 2 years back), but they also require advance rates and service charges to be paid. Some require the advance payment to be for a fixed period while others require payment to be made for the balance of the current rating year.
I have, until recently been under the impression that there is a uniform practice in terms of which all municipalities will, after the transfer is registered, refund to the seller the balance of the advance rates and service charges paid beyond the day prior to the date of transfer and then charge rates and services to the new owner on a new account from date of transfer. This makes logical sense as the seller is only liable for rates while he is the owner and the new owner is liable from the date of transfer. The seller only consumes services (usually) until the date of transfer and the Purchaser thereafter. I have also been under the impression that at least part of the purpose of the national legislation on the matter of rates clearances and recovery of rates and service charges was to introduce uniformity throughout the country in the interests of certainty.
Liability for rates is imposed on the owner of a property in terms of section 24(1) of the Local Government Property Rates Act of 2004. Similarly services are provided in terms of Chapter 8 of the Local Government Municipal Systems Act and the recovery of such charges is dealt with in Chapter 9 of that act.
I recently discovered that the Ndlambe Municipality in the Eastern Cape regards it as being the Conveyancers responsibility to make the pro rata adjustment between the purchaser and the seller. It occurs to me that here may be other municipalities that follow the same practice.
As rates are fixed for each rating year there is little difficulty about making adjustments between purchaser and seller. As certain municipal services are metered in order to be charged out the adjustment of such future metered services between purchaser and seller by a conveyancer is little more than guesswork. When a municipality makes the adjustment relating to metered services it is (or should be) based on actual consumption. The figures provided to the conveyancer for the purpose of a rates clearance can only be estimates in so far as they relate to future metered services. If the property is vacant for, say, six months after transfer and no metered services are used by the new owner it is impossible for the conveyancer to make a proper adjustment between purchaser and seller but a refund made by the municipality will be for more accurate and services, as metered, will be charged to the new owner on his new account from date of transfer. I am of course aware that there is often a considerable delay before the municipality is provided with details of the fact of a transfer being registered.
My question therefore is this: Is there any justification for any municipality insisting that it is the responsibility of the conveyancer to adjust rates and service charges, including metered service charges, between purchaser and seller?
I have experienced the same problem with a number of smaller municipalities in our area. In most of these cases I also do not get a clear schedule as to how the amount we have to pay is calculated. We are so desperate to obtain the certificate that we accept the figures and pay in order to be able to lodge. I also experience the same problem with some body corporates.
In the past this was always the Conveyancer's responsibility as the rates had to be paid up for the full rates year - normally June 30. The Seller would pay and the conveyancer would recover a pro rata share from the Purchaser.The prudent approach is to enquire from the Municipality whether it will do an apportionment or whether you must do it. Some smaller municipalities do the apportionment - others don't. Sellers should be advised to ask for final readings to be taken and Purchasers advised to arrange for application for services - especially in the smaller municipalities.
It depends on the practice of the relevant municipality, and they differ. For example, for the Cape Town municipality, the conveyancer does not apportion the rates which have been prepaid because the municipality (eventually) does this. Other municipalities expect the conveyancer to apply via the RatesClearance.com system for the refund, and still others don't do any apportionment themselves and leave it to the conveyancer.
I am the "pleppy" (with no certificate on the wall) who is responsible for the finance recon on registration. The practice to apportion the rates between the Seller and Purchaser, if I remember correctly, was done away with during the early 2000's (yes I am of the older generation of conveyancing ladies and been there, done that and have the cap for it) and all of a sudden resurfaced earlier this year. Are we to do the Councils' work for them and in the end get blamed if apportioned amounts are in correct? It is a schlep and unfair of the Councils' the shove their work onto the transferring attorneys. They get the pay and we do the work.
I don't think there is any justification. But, I think it makes good sense. We used to do the adjustment and it worked well. Now no adjustment is done and the sellers have to wait for their refunds, sometimes in the case of COJ, years or it never happens. In addition, when the refund is given the seller has no clue how it has been calculated or whether it is in fact correct. Many sellers just give up.
Now COJ is insisting on refunding the money into the conveyancer's trust account which creates an extra administrative burden on the practice, and the only reference on the refund is the account number. In a big conveyancing practice it's an administrative burden on secretaries and accounts staff. Sectional Title levies work on the system that the conveyancer can adjust the accounts pro rata, so there is not reason why we can't do it for rates.
The apportionment of the rates is not a problem for me, but I have a problem with the metered services added to the figures. These sometimes amount to more than the annual rates on a property and it is difficult to justify that to the client if there is no consistency in the way it is calculated by the municipality.
Our firm is based in Johannesburg and we've recently attended to a transfer under the "Ray Nkoni Municipality" (Hibiscus Coast Municipality). We applied for clearance figures via the GhostConvey portal. At no point were we advised that we would have to apportion the annual rates between buyer and seller. The Council's website is silent on the issue. I agree, there needs to be a standard procedure set in place.
Viewed from a seller's perspective - it is almost impossible to obtain a refund from Council after registration has taken place. Obtaining the clearance certificate is not a problem - you just pay six months in advance - but the staff are unable to calculate your refund portion. So in my opinion the main question raised by Mr Moore has numerous aspects that need to be addressed.
One has to look carefully at each assessment received. Usually there are separate account numbers. The one account number will be the actual rate account number which remains with the property and therefore adjustments can be made by the conveyancers very easily. The other account numbers will be the sellers account number which will be terminated by the seller when he disconnects his utilities. The purchaser will get his own account number when he connects his utilities therefore no adjustments are made.
The whole amount is debited to the sellers account and it reflects as a credit on his account with the municipality. When the council does the final reading to the determine the actual consumption the seller will be refunded the balance of the credit paid by the conveyancers as per the assessment less the consumption as per the reading. That is how ethekwini works anyway. We don't have any problems.
We had a similar situation at the Mosselbay Municipality where conveyancers are expected to apportion the rates. We only became aware of this situation after transfer took place. It will make life easier if all the municipalities have the same practice.
I'm surprised at this article, I thought it was common knowledge in conveyancing that municipalities work differently, this was part of my basic training. As a transfers paralegal, if ever in doubt about the municipal procedures for any specific local authority, I phone the said Municipality to ask what their procedure is with regard to the rates/services change-over and work my financial adjustments accordingly. Some conveyancers and paralegals tend to receive the figures and just pay, no questions asked, also not providing any guidance to the seller/purchaser re what to do after transfer.
One should scrutinise to ensure all services are reflected on the clearance schedule and if not, establish if, for example, a prepaid electricity meter is installed (then no worries) or a separate electricity acct exists (this will have to be addressed with the seller & purchaser to ensure it is dealt with) or e.g. if water/services is billed as part of HOA/ST levies, etc. Conveyancing staff should check with Municipalities/HoAs/BCs procedures before finalising finances and work accordingly.
To me the biggest problem is when property practitioners don't understand the difference between possession and occupation when finalising sale agreements. This has a huge bearing on the complexity of finalising finances and if dealt with properly in the sale agreement can result in simplifying the finances immensely. [In fact, I'm shocked at how many sale agreement templates from top estate agencies have conflicting clauses within the same template regarding occupation/possession/risk/benefit!]