Historical Property Debts – Beware the Risk!
Historical Property Debts – Purchaser’s beware!
As many of you may be aware, the recent Supreme Court decision of City of Tshwane Metropolitan Municipality v PJ Mitchell  ZASCA 1 (29 January 2016) found that a municipality can institute legal action against a current owner of a property for any historical municipal debts that exist in respect of that property, irrespective of whether the current owner incurred such debt, thus where the debt was incurred by the previous property owners.
This means that a property owner could be liable for historical debts of up to 30 years (for rates, refuse and sewerage charges) and up to 3 years (for electricity and water) provided that the municipality has complied with its own by-laws.
Notwithstanding this judgment, it seems that new property owners of Johannesburg can sleep peacefully. As reported in Business Day Live, the spokesman for the Johannesburg Municipality’s finance department has stated that the City of Johannesburg will not hold new owners liable for historical property debt but instead, will insist that the previous owner settle all outstanding debt against a particular property prior to it being transferred to the new buyer. The question that remains however is what happens if this historical debt is not settled as a result of an oversight? Does this mean that the new owner in Johannesburg escapes liability? Also, does the owner who wants to transfer his Johannesburg property have to settle all historical debt or will the municipality only look at the debt incurred during the period that the property was owned by that seller? These are scenarios which will no doubt test the Johannesburg policy.
Whilst this is good news for the residents of Johannesburg, the question remains – what should the rest of the country be doing to avoid this potential risk?
To minimise this risk, we suggest that prospective purchasers insist on the following when entering into agreements of sale to purchase property:
- Request a copy of the seller’s municipal account reflecting all arrear monies owed on that property prior to entering into an agreement of sale;
- Insert a warranty in the agreement of sale in terms of which the seller warrants that there are no historical municipal debts that attach to the property; and
- Insert an indemnity in the agreement of sale in terms of which the seller indemnifies the purchaser against any claims that may be made against the purchaser for historical debt which arose prior to the purchase date.
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