Mortgage bonds - judgment

The Transvaal Provincial Division judgment in Summer Symphony Properties 13 CC and BOE Bank Limited vs City of Tshwane Metropolitan Municipality and The Registrar of Deeds, has deprived banks of mortgage security over their properties. High Court judge, BR du Plessis, has interpreted the Local Government Municipal Systems Act 32 of 2000 as giving municipalities preference over property mortgage bondholders for any money relating to properties that is owed to them.

Tony Olivier, senior partner of Pretoria attorneys Dyasons, says that this includes money owed by property tenants and covers debt outstanding for as long as 30 years. "This is a crisis for the banks," he says. With a mortgage book totalling R280bn at present, even a 0.5% extra loss to municipalities could cost the banks about R1.4bn in profits. Until now, municipalities had effective preference for rates, taxes and services charged to the property owner for up to two years. Property ownership could not be transferred until the local authority had issued a clearance certificate confirming payment. However, in his judgment, Du Plessis says that the Municipal Systems Act clearly gives all council debt preference over any mortgage bond.

Full report in the Financial Mail (subscription needed)

Judgment on KZNLS Law Library website