Now that the metropolitan municipalities of Tshwane and Ekurhuleni have been ordered by the Constitutional Court to cease the widespread practice of making new homeowners liable for historical debt of former owners, the metros might face huge refund bills.
Home and business owners have been saddled with years of historical municipal debt – dating back 20 years in some cases – and have been denied municipal services until the debt had been settled.
This controversial practice has been declared unlawful by the court as new owners have no connection to a seller’s municipal debt (including water, electricity, rates and taxes charges).
Justice Edwin Cameron, who wrote the court judgment, said the Bill of Rights barred the deprivation of property, which would happen if old debts were imposed on new property owners.
Read more here: New property owners not liable for old debt, court rules.
New homeowners that were subjected to pay historical debts are starting to use the court judgment to claim back their proceeds. Municipal debt specialist New Ventures Consulting and Services, which represented property owners that have carried the liability for the historical debt, is leading the charge in recovering the proceeds.
“We are going to be recovering all debts for people, whether they have paid the money under protest or not. We will be going against all the municipalities to pay back the money,” said New Ventures managing director Peter Livanos.
Thirteen applicants had approached the apex court after the metros of Tshwane and Ekurhuleni appealed an earlier Pretoria High Court judgment, which barred the transfer of debt to a new owner.
One of the applicants was Chantel Jordaan, who purchased a property at an auction in 2013. The Tshwane municipality initially claimed R88 000 from Jordaan, who only paid R35 000 after audit firm New Ventures intervened and reduced the amount due.
The municipality demanded the full historical debt and refused to enter into a consumer agreement with Jordaan to supply municipal services.
Tshwane municipality found refuge in section 118 (3) of the Municipal Systems Act, which includes a security provision for historical debt to be incurred by the new owner.
Historically, a property was not allowed to be transferred to a new buyer until a municipal certificate that cleared debt spanning over two years was issued under section 118 (1) the act. However, debts that passed the two-year cut off became the liability of the new owner. If the owner failed to pay the debt, the municipality was then permitted to attach and sell the property to settle the debt.
“One of our clients got a court order against a municipality but they still refused to supply him with electricity. We paid the outstanding money that the municipalities wanted even though we were armed with a court order. We are now going to demand that money back,” said Livanos.
Sam Mgobozi, the spokesperson for Tshwane Mayor Solly Msimanga, didn’t answer whether the city plans to refund homeowners or the total amount previously paid by new owners before the precedent-setting court judgment.
Instead, he said a legal process will be instituted against the previous property owners to recoup the old debt. “The city is also reviewing all debt collection and credit control actions to prevent the escalation of new debt going forward.”
Themba Gadebe, the spokesperson for the Ekurhuleni municipality, property transfers in which clearance certificates have been issued are deemed “to be finalised” – in other words, a refund will not be granted to new home owners.
The liability of municipal debts also resulted in financial losses for businesses, among them, commercial property development financier TUHF.
Municipalities would be the first to claim the debt from the proceeds of a property sale, which could result in banks and financiers not getting their money back.
Paul Jackson, the CEO of TUHF, could attest to this. “We have one example in the Ekurhuleni area, where a transferring attorney said they were going to appropriate the proceeds of sale – in other words claim seniority to the mortgage financier on an amount that they had no court order or proof that the property was indeed owing.”
He said TUHF could recover the losses from the metros through court action but “we have moved on”.
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