Good News for Buyers: Historical Debt Ruling Declared Invalid

The Gauteng High Court has ruled that new home owners cannot be held liable for the ‘historic debt’ owed to municipalities by previous owners. This comes as welcome news since the market was thrown a curveball towards the end of January this year; when the Supreme Court of Appeal ruled that new owners could be held responsible for municipal debt (rates, water and electricity) dating back 30 years. The ruling was made in terms section 118 of the Local Government Municipal Systems Act in order to obtain a clearance certificate.

“We expected that this ruling would be challenged as it not only blatantly prohibitive, but also unfair to new buyers. We’re delighted to see that the ruling has been declared invalid, says Bruce Swain, MD of Leapfrog Property Group.

Judge Dawie Fourie queried why a municipality was entitled to ‘visit the sins of a predecessor in title upon innocent third parties when there is no relationship or connection between that party and the debts in question’ and declared the section of the Act constitutionally invalid.

The judge has ordered “The Tshwane and Ekurhuleni metros to render municipal services where no debt exists in respect of municipal services between the municipalities and the new owners. The municipalities were also “restrained from claiming payment of outstanding amounts from new owners where they have no debt relationship with the municipality concerned in respect of municipal rates, taxes and charges”.

“Local municipalities do have legal recourse to deal with arrears and expecting new owners to pay a previous owner’s debt is simply ludicrous. Hopefully this judgement will not only offer a lifeline to new home owners saddled with debt that’s not their own, but will encourage prospective buyers to purchase, safe in the knowledge that they won’t suddenly be hit with massive historic debts”, believes Swain.