If the Municipality miscalculates the amount owing on property rates, is the previous owner liable for payment?

The long answer

To begin with, there has been a great deal of confusion for some years as to precisely what Section 118(3) of the Local Government: Municipal Systems Act means: 

It says the following:

“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.”

This was interpreted for some years that any municipal debt could be charged to the new owners after the municipality found that there were amounts owing that they hadn’t been aware of when they issued the rates clearance certificate and after the transfer of the property had been registered. But the Gauteng High Court found in 2014 that the interpretation of the municipalities was incorrect. The judgment found that current owners were not liable for the debts of previous owners. It said that the outstanding debt owed by the previous owner remained owing by that owner. It is unaffected by the transfer of the property to a new owner and remained due by the owner that incurred the debt to the municipality.

And in 2017 the Constitutional Court confirmed that new homeowners could not be held responsible for historic municipal debt incurred by the previous owner in terms of Section 118(3) of the Local Government Municipal Systems Act. 

I don’t know if you are in Cape Town, but just to make things more complex, Milton Matsemela of Milton’s Law has said the following: “We have received reports from literally hundreds of clients who have recently sold their properties in Cape Town advising that, months after the transfer was registered, they are still receiving a municipal account. More alarmingly, the account now reflected a substantial amount owing by themselves to the municipality.”

He goes on to say that the municipality had identified the problem and would be rectifying it and, in the meantime, the municipality would not be seeking to collect the outstanding amounts from the previous owner. 

This is the way it is supposed to work: the Buyer must present the municipality with a letter from the Conveyancer advising that the property has been registered in their name, and their ID. They can then open a new account and must advise you as the Seller that they have opened a new account so that you can close yours.

As the Seller of a property, you can only close a municipal account when you present a letter from the Conveyancer confirming that the transfer has taken place, a utility bill reflecting your municipal account number and your ID. You will then be required to pay any outstanding monies due to the municipality before you can close your account. 

But in all this, what is not at issue is that the municipality has an overriding right to be paid any outstanding debt. So, it seems that even if the municipality had miscalculated the amount owing when they issued the rates clearance certificate, it probably has the right to hold you as the previous owner responsible for paying the outstanding amount.

You could ask the MEC for Housing in your province to clarify whether this is the case.

Wishing you the best,
Athalie