Are you liable for historic debt?
This is called ‘historical debt’. Historical debt is any debt associated with a property including for example rates, electricity and water. When a house is sold and ownership has changed, the debt attached to the property changes hands too. So far municipalities have only claimed on electricity debt that is outstanding but a legal expert has told Justmoney that there is no reason why municipalities won’t think of collecting any energy and rates related bills that are outstanding from new owners.
“The act says that it is a liability on the property and not on the person,” said Maryna Botha, senior associate at legal firm STBB.
Part of the process of transferring ownership to the purchaser involves obtaining a municipality clearance certificate confirming that all outstanding amounts from the past two years have been fully paid, according to STBB.
“The Court here confirmed that the municipality must issue such certificate if the preceding two year's rates are paid; it cannot refuse the clearance because there are historic debts older than two years. The latter debts are secured in that they remain a charge against the land,” said STBB.
The ability of municipalities to collect on old outstanding debt has come about as a result of a loophole in the Municipal Systems Act, specifically Section 118 (1) and (3).
The act states that up to two years before the point of sale, new home owners can still be expected to pay the debt connected to the property.
The full act can be found here.
What can property buyers do?
However, MA Cooper Attorneys said that: “When one sells or buys immovable property (a house) there must be a written sale agreement. This agreement should cover any issues relating to rates, taxes, and municipal accounts.”
Furthermore, if a buyer seeks additional protection, they can ask for written warranties from the sellers that no amounts are outstanding. Additionally they should ask for disclosure of the relevant information, or they should ask the local council if any amounts are owing.
“The Municipal Property Rates Act states that clearance must be issued if debt for two years has been paid, so for any transfer those debts are paid, so historic debt is any debt before that time,” said Botha.
“Generally, one would expect this to come up when checking any rates account and applying for rates clearance certificates,” said MA Coppers Attorneys.
So are municipalities to blame for taking advantage of this loophole? Botha said that trying to “point fingers” is difficult as the act is confusing. The debt is on the property and not the person, and thus new owners can be liable for the debt.
“I doubt they can switch off lights for historic debts. If they do that you are going to have to pay the debts,” said Botha.
Botha warned clients that if it is not stated in their clearance certificate that debts to the municipality had been paid, then new home owners can be liable to pay historic debt.
“If it is not in the sale agreement where you say as a purchaser ‘I also want confirmation that the historic debt is paid full’, it is unlikely that [you as] the new purchaser will have a claim against the seller,” said Botha.
Sadly there are no definitive court cases against municipalities at this time. Experts are however urging buyers to check if their property has any historical debt, and to get a clearance certificate before purchase of the property.
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