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19 June 2014

TRANSFER OF PROPERTY – MUNICIPAL DEBT / CLEARANCE CERTIFICATES
In order to effect a transfer, the Deeds Office requires that a Municipal Clearance Certificate is issued by the respective local Municipality. Many people do not understand the true meaning and intentions behind Clearance Certificates and their wording can be very misleading to laymen, consider the following:  “THIS CERTIFICATE IS TO CERTIFY THAT ALL AMOUNTS DUE IN TERMS ON SECTION 118(1) HAVE BEEN PAID IN FULL.”

EXAMPLES OF CLEARANCE CERTIFICATES
Ekurhuleni / City of Johannesburg / City of Tshwane

Most people would assume that the wording above indicates that all the debts owing to a Municipality have been paid in full… but this is not the case!

The Certificate must be read more carefully, as the wording says that it has been paid “in full in terms of Section 118”. What many people do not realise, is that the Clearance Figures need to “marry” the Certificate. That is, when transferring attorneys apply for Clearance Figures, they may or may not be aware, that they are applying for a breakdown of the last 2 years debts… NOT THE FULL ARREARS.

SECTION 118 OF THE MUNICIPAL SYSTEMS ACT 32 OF 2000
(Please click here to view the full wording) In laymen’s terms, all that it means is that if the last 2 years debts that were owing to a Municipality, “have been paid in full”, the relevant Municipality must issue a Municipal Clearance Certificate, in order for the transferring attorneys, to transfer the property at the Deeds Office.

The amounts older than the 2 years, have to be dealt with, as those debts do not dissolve and/or disappear. Unfortunately, the transferring attorneys have been given the task to transfer the property with all of its complications.

Rightly or wrongly, many transferring attorneys, feel that they are not Debt Collectors for the Municipality and only want to focus on settling the debts in order to effect a transfer.

To add “fuel to the fire”, many of the Municipalities Clearance Figures, are ambiguous and sometimes difficult to decipher unless one is an expert.

We are however strongly of the opinion, that whenever possible, all debts owing to a Municipality should be settled in full at the transfer stage. If the correct debts are settled at this stage, the issue of the Municipality trying to transfer old owners’ debts to current owners will become academic and literally a “storm in a teacup”.

Many transferring attorneys have been criticised, post transfer, for not informing their clients of the true meaning of Clearance Certificates when the Municipalities subsequently refuse services to the new owners.

Therefore to avoid such a situation arising it is vital for transferring attorneys to explain to their clients, the purpose of a Clearance Certificate as well as the ramifications of the debts outside of the 2 year period when transfer is effected.

Peter Livanos
New Ventures Consultancy and Services

Reader Comments: 8
Alex Dannhauser 20/06/2014:

Does Prescription not apply to municipal debt?

Anton Kilian 20/06/2014:

I agree that it is in the best interest of all parties, including the Conveyancer, to settle all outstanding debts before transfer as any such post transfer problems are always blamed on the Conveyancer and then detrimentally and unnecessary affects relationships afterwards. Thank you for your News and Views.

Russell Warner 20/06/2014:

According to the judgment in Mathabathe there is no limit placed on the duration of the lien (except in cases of insolvency). The different components of the debt can all be consolidated. How would one separate the services from the tax? The judgment states that it does not matter when the component parts of the debt became due. How is this reconcilable with prescription periods of 3 years for services and 30 years for rates? It would seem that these debts cannot prescribe.

Russell Warner 20/06/2014:

However, according to The executive director in the revenue and customer relations management department of the City of Johannesburg, Vicky Shuping, in a post on the city's web site, "Irrecoverable debt is informed by the Prescription Act. In terms of this Act, municipalities can legally pursue debt in respect of rates and taxes for 30 years and debt on services such as water and electricity for three years. Much of the bad debt the City carries is very old and, therefore, is probably irrecoverable".

Peter Livanos 20/06/2014:

Alex, yes it does but obviously needs to be qualified properly, it isn't automatic... Anton, it is our absolute pleasure and yes you make a very valid point, that relationships get unnecessarily harmed! Our firm ensures the correct amount are checked, verified and settled ito the correct implementation of Section 118 (1)(2)&(3), where applicable and assist many banks, conveyancing firms, sellers, purchasers etc...

Russell Warner 26/06/2014:

So, Peter the bottom line is that the purchaser of a property could end up liable for services in respect of the third year preceding the issue of the certificate and up to 28 years of municipal rates?

AMY 30/06/2014:

Is it not the Seller, rather than the Purchaser, who is liable for municipal debt incurred prior to transfer? Do not underestimate the City of Joburg. I have seen cases where it has credited a seller's fully paid account with two years worth of payments, and created an equivalent debit on the Purchaser's account.

Peter Livanos 01/07/2014:

Russell and Amy, a huge point what I need to try make (and if you go to our website and see our press releases pages), you will hopefully see the "bigger picture here"... In Law, the Municipality is bound by legislation, By-Laws, Policies etc. "In Law" its very easy to say what they should and should not be doing, but the sad reality and in practise, many people often find, is that certain Municipalities and their own officials don't have a thorough understanding of what they can and cant do and "just do what they feel makes sense to them"... Thus creating the nightmare that so many innocent people are now facing and suffering with...

Certain municipalities are just turning off water and electricity for old owners debts which is all about what our major court case which is running at the moment is all about... So Russell, to answer your question, no in Law, they can not do it, but in practise the municipalities are doing just that and making innocent people suffer for something that they are in fact the architect of... They allowed these arrears to accumulate with little or no debt control procedures... For years we have been trying to assist the various municipalities to implement sound and legal practises, but they keep ignoring us... Why... Id prefer not to comment at this stage....... Amy, yes, you are quite right!!!

And that's part of the point we are trying to make... The right person must pay for their debts... We suggest that all debts should be settled at the transfer stage... By doing this, even with the municipal officials still making mistakes, at least no one can criticise a seller or transferring attorney for not trying to do the right thing at the end of the day... We often advise transferring attorneys to suggest our services to clients to avoid this... What we feel isn't right though is that people purposefully try to "take advantage of legislation" and only settle the last 2 years arrears and "hope for the best".

Settling ALL ARREARS in the correct way is our advice! Our firm specialises in just this, that one must question if the amounts are correct that the council claims, if you have the expertise to fight the municipality, do it! If you don't, we guarantee great success in making sure that the correct person, whether it be a bank, seller, purchaser, trustee etc settle the correct legal and lawful amounts...Not just any amounts claimed by the Municipalities.... Many many thanks for the wonderful comments, questions and feedback on this forum!!!

Peter Livanos
New Ventures Consulting & Services

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