Historical municipal debt of new owners declared unconstitutional
The
North Gauteng High Court passed an important judgment on 7 November
2016 holding that a municipality may not hold a property owner liable
for a previous owner's historical municipal debts.
There
were various similarities between the five applications heard together
in this case, including the overlap of the relief sought, the
outstanding historical debts in respect of the properties and the fact
that the municipality had certified in terms of section 118(1), that all
debts have been settled for a period of two years preceding the date of
the applications for the rates clearance certificate.
The
main issue before the court related to the constitutionality of section
118(3) of the Municipal Systems Act (the "Act"), which section provides
a municipality with security for repayment of debt.
The
court noted that the security granted to a Municipality by section
118(3) of the Act is not extinguished by the transfer of a property from
one owner to another and enjoys preference over any mortgage bond
registered over the property. Accordingly, should any debt be owing,
nothing would prevent a municipality from perfecting its security over
the property by obtaining a court order to sell the property and apply
the proceeds thereof to pay off outstanding historical debt. Section
118(3) of the Act could therefore result in the subsequent owner losing
the ability to use, enjoy and/or exploit the property and ultimately
cause such owner to lose ownership thereof.
The
court held that the security provision afforded by section 118(3) of
the Act constitutes a severe limitation of the new owner's property
rights in terms of section 25(1) of the Constitution. The court further
stated that it is not only possible, but also desirable for a
municipality to prevent accumulation of historical debts by taking
appropriate action before a transfer of the property has occurred, and
that in terms of section 96 of the Act, the municipality is obliged to
collect all money due and payable to it.
The
court further stated that a new owner cannot be held liable for the
payment of the historical debt accumulation by previous owners and the
municipality should not be entitled to refuse the rendering of services
to such person, as this will result in a disregard of the municipality's
constitutional duty to ensure the provision of services to a community
member entitled thereto and would result in the exercise of a public
power without any legal authority.
The
court concluded that section 118(3) of the Act is unconstitutional to
the extent that it applies to new or subsequent owners of a property and
that the practice of holding new owners liable for historical debts is
unconstitutional and invalid. In addition, any disconnection,
suspension, restriction or withdrawal of municipal services where no
debt exists in respect of municipal services between the municipality
and the said customer constitutes conduct that is unconstitutional and
invalid.
The High Court has clearly ruled on issues which the Supreme Court of Appeal ("SCA") in the case of City of Tshwane v T Mathabathe (2013)
had not been asked to decide upon, namely whether or not a new owner
can be liable for historical debts or whether a municipality is entitled
to terminate services because of a previous owners debts due to the
Municipality. The SCA judgment does however still suggest that the
municipality can proceed to obtain an appropriate court order and sell a
property in execution to collect historic debt.
It
is therefore important to note that the High Court judgment is only
binding upon the jurisdiction of North Gauteng High Court and we do
await further cases to be decided. Hopefully the Constitutional Court
will be approached to pronounce judgment to finally settle these
issues.
By Abdul Allie, An Associate at Webber Wentzel
By Abdul Allie, An Associate at Webber Wentzel
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