Property owners not liable for historic municipal debt – what about mortgagees?

by | Jul 20, 2018 | Commercial law, Conveyancing and Property law, Publications

In the landmark Judgment of the Constitutional Court in Jordaan and Others vs City of Tshwane Metropolitan Municipality and Others (“Jordaan case”), the Court reviewed the constitutionality of Section 118(3) of the Local Government: Municipal Systems Act 32 of 2000 (hereinafter referred to as the “Act”). The Court did not declare Section 118(3) of the Act constitutionally invalid. The Court, rather held that a proper interpretation of the provision, provides that a charge on the property cannot survive transfer. With this interpretation in mind, new owners cannot be held liable for historical municipal debts of previous owners. However, what is the position of mortgagees in respect of Section 118(3)?

Section 118(3) of the Act

Section 118(3) of the Act provides that “an amount due for municipal services 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”.

In the Jordaan case, the Court declined to confirm the declaration of invalidity as Section 118(3) was capable of an interpretation that was in line with the Bill of Rights. The Court found that the security created by Section 118(3) did not survive transfer of the property to a new owner and declared that “upon transfer of a property, a new owner is not liable for debts arising before transfer from the charge upon the property. ”

Jordaan case and mortgagees

The Social housing organisation TUHF Ltd (TUHF), The Banking Association of South Africa (BASA), an association with thirty-two-member banks and the Johannesburg Attorneys Association (JAA). TUHF and BASA were admitted as amici curiae and associated themselves with the Applicants in challenging the meaning the municipalities ascribed to Section 118(3). They advanced further arguments including that Section 118(3), permitted arbitrary deprivation of the owners’ property rights. This is not only limited to new owners but extends to the real security rights the new owner confers on any mortgagee who extends a fresh loan on the security of the property post-transfer.