Historical Municipal Debt for the Account of New Owners Declared Unconstitutional

By Abdul Allie, An Associate at Webber Wentzel

The North Gauteng High Court passed an important judgment on 7 November 2016 holding that a municipality may not hold a property owner liable for a previous owner's historical municipal debts. 

There were various similarities between the five applications heard together in this case, including the overlap of the relief sought, the outstanding historical debts in respect of the properties and the fact that the municipality had certified in terms of section 118(1), that all debts have been settled for a period of two years preceding the date of the applications for the rates clearance certificate. 

The main issue before the court related to the constitutionality of section 118(3) of the Municipal Systems Act (the "Act"), which section provides a municipality with security for repayment of debt. 

The court noted that the security granted to a Municipality by section 118(3) of the Act is not extinguished by the transfer of a property from one owner to another and enjoys preference over any mortgage bond registered over the property.  Accordingly, should any debt be owing, nothing would prevent a municipality from perfecting its security over the property by obtaining a court order to sell the property and apply the proceeds thereof to pay off outstanding historical debt.  Section 118(3) of the Act could therefore result in the subsequent owner losing the ability to use, enjoy and/or exploit the property and ultimately cause such owner to lose ownership thereof. 

The court held that the security provision afforded by section 118(3) of the Act constitutes a severe limitation of the new owner's property rights in terms of section 25(1) of the Constitution. The court further stated that it is not only possible, but also desirable for a municipality to prevent accumulation of historical debts by taking appropriate action before a transfer of the property has occurred, and that in terms of section 96 of the Act, the municipality is obliged to collect all money due and payable to it.

The court further stated that a new owner cannot be held liable for the payment of the historical debt accumulation by previous owners and the municipality should not be entitled to refuse the rendering of services to such person, as this will result in a disregard of the municipality's constitutional duty to ensure the provision of services to a community member entitled thereto and would result in the exercise of a public power without any legal authority. 

The court concluded that section 118(3) of the Act is unconstitutional to the extent that it applies to new or subsequent owners of a property and that the practice of holding new owners liable for historical debts is unconstitutional and invalid. In addition, any disconnection, suspension, restriction or withdrawal of municipal services where no debt exists in respect of municipal services between the municipality and the said customer constitutes conduct that is unconstitutional and invalid. 

The High Court has clearly ruled on issues which the Supreme Court of Appeal ("SCA") in the case of City of Tshwane v T Mathabathe (2013) had not been asked to decide upon, namely whether or not a new owner can be liable for historical debts or whether a municipality is entitled to terminate services because of a previous owners debts due to the Municipality. The SCA judgment does however still suggest that the municipality can proceed to obtain an appropriate court order and sell a property in execution to collect historic debt. 

It is therefore important to note that the High Court judgment is only binding upon the jurisdiction of North Gauteng High Court and we do await further cases to be decided. Hopefully the Constitutional Court will be approached to pronounce judgment to finally settle these issues.