Rates victory for property sellers

Rates victory for property sellers

Rates victory for property sellers

In a major court victory for property owners, the Supreme Court of Appeal has ruled that municipalities cannot demand that property sellers pay in advance for many months of rates, fees and charges before issuing a rates clearance certificate.

In a case involving the Nelson Mandela municipality demanding at least R1 million in advanced rates for one year from Amber Mountain Investments 3, the company paid under duress for the sale to go through.

The seller believed it was liable only for rates and taxes up to the date of transfer, but not thereafter.

Aidan Kenny, director and property specialist at Werksmans Attorneys, said: "This is good news for the property market when you consider municipalities are often demanding sellers pay up to a year's rates, fees and charges in advance prior to issuing a rates clearance certificate."

The court had to decide whether the municipality was correct in requesting advance payments of rates for a year.

Said Kenny: "The ruling now vests sellers with the right to refuse to pay rates and charges for any amount in advance beyond the date of the certificate when applying for a rates clearance certificate.

"It also imposes an obligation on municipalities to change their policy to comply with the various acts applicable, forfeiting their right to collect advance rates and charges due in future prior to issuing a rates clearance certificate."

To transfer a property, the deeds office must be provided with a rates clearance certificate confirming that the charges due to the municipality have been paid to enable the registrar to effect transfer of the property.

"In practice, a computer application for a rates clearance certificate is generated and the municipality issues figures which must be paid prior to issuing of the rates clearance certificate," Kenny added.

"Certain municipalities issue figures that include rates and charges, which are payable for 12 months in advance. Once transfer is made, the sellers can claim the funds back from the municipality in respect of the sale after they cease to be an owner of the property," he added.

The court held that a rates clearance certificate was issued in respect of debt which has become due and payable in the two years preceding the date of the application for the certificate – not future municipal debt.

The court also held that the municipality's policy was inconsistent with section 118(1) of the Systems Act and such policy was void as it was in conflict and invalid.

Attorney Chantelle Gladwin said the municipality believed it was entitled to the rates and taxes, not just up to the date of transfer, but up until the end of the financial year in which the transfer had taken place.

"The court applied the law of interpretation of statutes and found that the municipality's interpretation was not sustainable and ruled in favour of the applicant, Amber Mountain," Gladwin added.

Anna Cox
City Watch
The Star