Rates clearance – A new risk for buyers?

ratesclearanceProperty buyers need to be aware of, and protect themselves against, a possible new risk.

In a nutshell, you cannot take transfer of a property until the local municipality issues a “rates clearance certificate” confirming that all rates, service charges, levies etc due on the property have been paid in full.

Your risk comes from the fact that, per a 2013 Supreme Court of Appeal (SCA) decision, the municipality must issue a clearance certificate even if the seller only pays amounts due for a two year period prior to the application for a certificate.  In other words, transfer to you can take place even if the seller still owes the municipality for charges pre-dating the two year clearance period.

The result – there could well be “old debt”, perhaps a lot of it (R151,324 in the case in question), still attaching to the property as a “charge” or “lien” upon it after you take ownership.  And whilst common sense suggests that the municipality should only be able to sue the original owner – i.e. the seller who sold to you – for these old debts, some legal commentators are interpreting the SCA decision to mean that the municipality could instead choose to sue you, as buyer and new owner of the property.  If so, you risk liability for any of the seller’s old debts that haven’t prescribed.

Don’t take a chance!

Whether or not this is a correct interpretation of the judgment is the subject of much debate in legal circles, but don’t take a chance – insist that the seller provides proof, before transfer, that all municipal debts, old as well as new, have been settled in full.  Such a provision must of course be written correctly into your sale agreement so once again – take legal advice before you sign anything!

Ashersons Attorneys

Ashersons Attorneys

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