Constitutional Court Ruling: New Home Owners Are No Longer Liable For Historical Municipal Debt

On 29 August 2017, the Constitutional Court handed down judgment in an application for confirmation of an order by the High Court of South Africa that declared section 118(3) of the Municipal Systems Act, 2000 constitutionally invalid.  This section provides that an amount due for municipal services rendered on any property is a “charge” upon that property and enjoys preference over any mortgage bond registered against the property.

The matter came before the High Court after various municipalities suspended, or refused to contract for the supply of, municipal services to the applicants’ properties.  This was on the basis that the applicants, the new owners of municipal properties, owe the municipalities for municipal services rendered to these properties before transfer.  In other words, the municipalities required the new owners to pay historical municipal debts.

The new owners complained that they faced darkness, having no electricity, and many other inhumane conditions because they bought property whose previous owners failed to meet their obligations to the municipality – and against whom the municipality failed to enforce its rights in fulfilment of its constitutional obligations.  

The High Court found section 118(3) constitutionally invalid to the extent only that it has the effect of transferring to new owners, municipal debts incurred before transfer.  The High Court found this to be an arbitrary deprivation of property in terms of the Constitution.  It said that new owners of property are not liable for municipal debts incurred by previous owners. Therefore, municipalities may not sell the property in execution to recover the debt or refuse to supply municipal services because of outstanding historical debts.

The Constitutional Court had to determine whether section 118(3), properly interpreted, in fact means that, when a new owner takes transfer of a property, the property remains burdened with the debts a previous owner incurred.  If the section was capable of an interpretation that did not impose constitutionally invalid consequences, the High Court’s declaration of constitutional invalidity would be unnecessary.

The municipalities contended that a proper construction of section 118(3) was that the charge survives transfer.  They argued that for municipalities to properly fulfil their constitutional duties of service delivery, in the greater good, they needed extraordinary debt collecting measures.  This meant burdening new owners with the responsibility of historical debts.  

The municipalities however conceded that nothing prevented them from enforcing their claims for historical debts against those who incurred them, namely the previous owners.  The municipalities conceded further that their powers included interdicting any impending transfer to a new owner by obtaining an interdict against the old, indebted owner, until the debts were paid.

It was argued on behalf of the applicants that section 118(3) permitted arbitrary deprivation of not just the new owner’s property rights, but of real security rights the new owner confers on any mortgagee who extends a fresh loan on the security of the property post-transfer. 

In a unanimous judgment, the Constitutional Court held that the provision is well capable of being interpreted so that the charge does not survive transfer to a new owner. The Court held that a mere statutory provision, without more, that a claim for a specified debt is a “charge” upon immovable property does not make that charge transmissible to successors in title of the property. 

In the result, the Court held that, because section 118(3) can properly and reasonably be interpreted without constitutional objection, it is not necessary to confirm the High Court’s declaration of invalidity.  For clarity, the Court, however, granted the applicants a declaration that the charge does not survive transfer.

In conclusion, new home owners can no longer be held liable for outstanding municipal debts incurred by previous owners and municipalities may not sell the property in execution to recover the debt or refuse to supply municipal services because thereof. 













DANIËL VAN ZYL
ATTORNEY & CONVEYANCER
VAN ZYL KRUGER INC

Disclaimer
© LawDotNews. This newsletter is a general information sheet and should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact a professional for specific and detailed advice.