Introduction
A rate clearance certificate is a legal document confirming that all municipal property rates, taxes, service fees, and levies have been paid in full. This certificate is essential for property transactions as it is required by law to transfer property ownership from one party to another. In South Africa, obtaining a rate clearance certificate is governed by statutes and case law. This article will explore how a rate clearance certificate is applied in South African law.
The Legal Framework
The Municipal Systems Act No. 32 of 2000 (the “Systems Act”) is the primary legislation governing the process of obtaining a rate clearance certificate.
Section 118 of the Act is of application and reads as follows:
“(1) A registrar of deeds may not register the transfer of property except on production to that registrar of deeds of a prescribed certificate-
- issued by the municipality or municipalities in which that property is situated; and
- which certifies that all amounts that became due in connection with that property for municipal service fees, surcharges on fees, property rates and other municipal taxes, levies and duties during the two years preceding the date of application for the certificate have been fully paid.”
What this section essentially requires is that before a property can be transferred, the municipality in question must issue a certificate to show that any and all debts that because due for municipal services, rates and taxes or levies in the last two years preceding the date of application for transfer have been paid in full. Section 1A of the act further states that the certificate is valid for 60 days from the issue date.
The question that arises and one that many property owners have been faced with is what happens when the municipality, after issuance of a certificate, tries to claim the debt. Case law provides some clarity on the position.
Case Law
Nelson Mandela Bay Municipality v Amber Mountain Investments 3 (Pty) Ltd
The above matter was an appeal case from the High Court where the court held that the municipality had overcharged Amber Mountain Investments 3 (Pty) Ltd (the “Seller”) by requiring it to pay the full rates for the property for the entire fiscal year. The Seller, in need of the rates clearance certificate, paid the amount of R2 281 014.68 under protest and then instituted action against the Nelson Mandela Bay Municipality (the “Municipality”) for the overpayment. The Eastern Cape Division of the High Court, Port Elizabeth (the “Court a quo”) held that the Seller was actually indebted in the amount of R1 214 482.68 and as such the Municipality has overcharged the Seller to the amount of R1 066 532.00. The Municipality appealed the judgment to the Supreme Court of Appeal (the “SCA”).
The SCA was faced with the question of whether or not a Seller applying for a rates clearance certificate is responsible for the full rate for the fiscal year of the Municipality. The court held upon the interpretation of the relevant legislation that to hold a Seller liable for debts would be incurred after the property had been transferred. The Argument turned on the reading of Section 118 of the Systems Act, which requires the Municipality to issue a rate clearance certificate to show that all debts of the preceding two years are no longer due. Therefore, Municipalities may not withhold clearance certificates for future debts. In confirming the judgment of the Court a quo, the SCA brought more clarity to property owners when it comes to seeking a rate clearance certificate from Municipalities.
Jordaan and Others v Tshwane Metropolitan Municipality and Others
The Central issue the Constitutional Court (the “CC”) was faced with in this matter was whether Section 118 of the Systems Act permitted a Municipality to “reclaim, from a new owner of a property, debts a predecessor in title incurred”. The court specifically needed to determine whether the provision was unconstitutional, as found by the High Court of South Africa, Gauteng Division, Pretoria.
In order to determine whether the order for invalidity should stand, the CC had to interpret the provision to determine whether, on a proper reading thereof, the words “charged upon the property” meant that debts survived transfer and would place liability on new owners.
The CC in interpreting Section 118(1) of the Systems Act, found that Municipalities have full power to ensure that their debts are paid when they are required to issue a Rates Clearance Certificate because they are provided with the opportunity to recover those debts from the transferring owner and as such the debts do no survive transfer of a property. The CC found that on a proper and reasonable interpretation of the provision, the debt would not survive the transfer and as such, an order of invalidity is not required.
Conclusion
The law around rate clearance certificates has developed in South African law, and the position has been made clear through proper interpretation by the courts. What has become clear is that, one, Municipalities may not charge for future debts, and second, debts do not survive the property transfer to make a new owner responsible for the historical debt. But a significant question remains whether, once a rate clearance certificate is issued, a municipality can hold the previous owner liable after the fact.
If you are struggling with issues surrounding rate clearance certificates, why not consult an attorney at SchoemanLaw.
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