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New s118(3) process

18 April 2013

Due to the number of requests from Transfer Attorneys to only pay outstanding debt on properties for the two years preceding the application for the certificate, the balance on the property still due to the City of Cape Town will be dealt with by a new process as outlined below. This process will be managed jointly by the Rates Clearances and Debt Management Departments.  

As from the 1st of May any one of the following measures will be used by a Municipality to enforce section 118(3) of the Local Government: Municipal Systems Act, 32 of 2000:

  1. Attempting to obtain full payment of all municipal debt from the seller.

  2. Requesting the seller to authorise the conveyancer to provide an undertaking that payment will be made of any unpaid debt, out of the proceeds of the sale of the property, if sufficient, upon registration of transfer in preference to any bond holder.

  3. Informing the purchaser that should there be any municipal debt outstanding against the property, such debt is a charge against the property, and that such purchaser shall be liable for such debt which is still owing after registration and that the continued supply of municipal services to the property may be affected while the debt remains outstanding.

  4. Interdicting the transfer of the property until the municipal debt is paid in full. 

  5. Interdicting the distribution of the proceeds of the sale.

Cape Town - Enforcement of Section 118(3)

Reader Comments: 12
Leonard Maart 19/04/2013:

Why is it that the Municipality charges advance collections of 120 days i.e. 4 months, when section 118(b) clearly only refers to amounts due during the two years preceding the date of application for a certificate? Surely, the advance collections are illegal.

NIKKIE 25/04/2013:

If you are referring to the calculations 4 months in advance, it is not illegal but in fact necessary as the certificate needs to be valid for 4 months. If the municipality did not issue figures 4 months in advance how would they then be sure that they will get the outstanding monies owing for that specific 4 months while transfer is taking place?

Riana 25/04/2013:

I am more worried about point number 3 above.... What is a purchaser to do? By the time the Conveyancer applies for the Rates Clearance Certificate, the Purchaser does not have an option to cancel the purchase anymore. How is this going to encourage a new purchaser to pay outstanding debt on his own property - because eventually - it will just become the next purchasers problem... right?

Mark Christian 25/04/2013:

A similar matter will be heard by the Supreme Court of Appeal on 6 May 2013.

PATTI 26/04/2013:

I cannot see how there will ever be a large amount for which the Purchaser will be liable. Council will not issue a clearance unless they either have payment of the amounts outstanding plus 120 days or an undertaking from the attorney attending to the transfer to the effect that the amount outstanding will be paid on registration out of the proceeds.

Kaycee 26/04/2013:

POINT 3 : this is still going to do the rounds in some Court and is no legal precedent that the PURCHASER can or will be liable for the sellers arrears rates and taxes - we just need an attorney and a purchaser who is willing to take this point up in Court and I have not doubt whatsoever that this will not stand up in a Court of Law - the PROBLEM is that the Municipality has to ensure - via all legal methods - to recover the arrears rates and taxes from the seller. This is just an easy scheme to collect funds for the L/C - when they themselves lack the resources or rather failure on their own part to collect the amounts from the present registered owner.

Robert Krautkramer 03/05/2013:

Council cannot do this. It is established law that where a RCC is issued and services going back 2 years have been settled, this (to quote the case law) “does not relieve the property owner of any liability of an amount due in respect of an earlier period” and that “the municipality still retains the right to proceed against the previous owner by way of an action to recover the balance outstanding, and may even take appropriate steps to attach the proceeds of sale of the property as security for payment of the balance outstanding, to be paid once the process of alienating shall have been completed”.

So too it is established law that “Any amount due for municipal debts (i.e. not limited by the aforesaid period of two years) that have not prescribed, is secured by the property and, if not paid and an appropriate order of court is obtained, the property may be sold in execution and the proceeds applied in payment of the debts. In such event, the proceeds will be applied to payment of the municipal debts in full. Only after satisfaction of such debts will the remainder, if any, be available for payment of the debt secured by a mortgage bond over the property.”

But this still doesn’t answer the question which is posed by everyone namely, may and can the COCT look to the NEW owner: The answer must be NO for at least the following reasons:

1. Nothing stops Council from still proceeding against the (former) owner for the arrears (as long as they haven’t prescribed under the Prescription Act); and in any event, 

2. The Local Government: Municipal Property Rates Act of 2004 provides that “a rate levied by a municipality on a property must be paid by the owner of the property”. “Owner” is however defined to mean “the person in whose name the property is registered” (without stating whether past or future). However THEN IT GOES FURTHER under the definitions of “owner” to state that “provided that a person mentioned below may for purposes of this Act be regarded by a municipality as the owner of a property in the following cases: ...a buyer, in the case of a property that was sold by the municipality...”

3. The Local Government: Property Rates Act clearly therefore makes provision for the fact that a BUYER can ALSO be regarded as an “owner”, but only in one limited instance.

4. What this also shows us is that at the time when the legislator made this law, it clearly envisioned that “buyer” and “owner” are two different parties EXCEPT in one particular instance. For any other type of sale (i.e. your usual sale between private individuals), “owner” must therefore be interpreted to mean the PREVIOUS owner and not the FUTURE owner, i.e. the buyer.

5. As such, there is no law that we are aware of which would entitle Council to impose this liability for arrears on the BUYER, “as a charge against the property”. Any such attempt would in our view be unlawful and unconstitutional.

Farouk Khan 09/05/2013:

One interpretation that outstanding rates is a debt over the property and not the owner. Arrear rates may be recovered from the owner in the normal course and any arrears no matter who the owner was at the time of the arrears is recovered from the present owner notwithstanding the fact that he had not incurred the debt. I await other comments.

Mark Christian 10/05/2013:

Farouk, you may be right, but this view may be challenged in that it may be regarded as an infringement of the new owner's property rights (deprivation?). If one looks at Section 118(3) of the Local Government: Municipal Systems Act, 32 of 2000, it states that: "(3) An amount due for municipal service fees, surcharges on fees, property rates and other municipal taxes, levies and duties is a charge upon the property in connection with which the amount is owing and enjoys preference over any mortgage bond registered against the property." The question I am battling with is whether this charge upon the property (in effect a statutory hypothec) may be enforced against the new owner for historical debt, after the transfer is registered? What then further happens with the preference that the municipality enjoyed over the proceeds due to the bondholder?

john 10/05/2013:

The municipality can utilise the options available as set out in sections 1,2,4 and 5 but will need a court order. As to holding the new owner liable for the previous owners liability that is utter nonsense since one only has to have regard to the heading of section 118 of the Municipal Systems Act to rebut their fallacy in that it is titled RESTRAINT ON TRANSFER OF PROPERTY. Once the property is transferred the arrears are no longer a charge on the property and thus the new owner cannot be liable.

PETER LIVANOS - NEW VENTURES CONSULTANCY & SERICES 12/05/2013:

Certain of the measures City of Cape Town is trying to implement are nonsensical and absurd. Our Firm specialises in the CORRECT IMPLEMENTATION not only of Section 118(3), but ALL the Sub-Sections Of 118, many other Legislations, Statute Law, By-Laws Per Council , Judgments etc GOVERNING MUNICIPALITIES to ensure the protection of ALL PARTIES.  We act for most of the major Banks, thousands of clients, most of the large firms of Transferring Attorneys where anyone has encountered any kinds of problems with council wrt the issuing of a Clearance Certificate and settling any amounts that are legally due and owing on a property - info@livanosgroup.co.za

Joyce Pillay 08/05/2014:

What if council owes seller monies in terms of overpayments made over the years through "estimated" water and electricity and each time they threatened to cut off services and even though COJ accounts were incorrect, the owner was forced to pay lumpsum payments to stop such action. This over the years accumulates and now when it is time to transfer the property, COJ owes seller but COJ continues to show alleged arrears through continued incorrect billing. How does payment in terms of Section 118 help the seller?

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