Louise Reyneke Properties

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Further to unpaid municipal debts older than 24 months:

A recent High Court judgment (Stand 278 Strydom Park (Pty) Limited v Ekurhuleni Metropolitan Municipality) confirmed that:

This case brings some relief to those owners who have been in lengthy disputes with their municipality regarding debt incurred by the previous owners of the property.

What this means for purchasers

When a property is sold and in the process of being transferred to the purchaser, it frequently happens that the municipality does not recover all of the arrears from the seller but nevertheless issues a rates clearance certificate to the transferring attorney.

After transfer of the property to the new owners, the municipality then realises that the previous owners’ rates and taxes in respect of the property are still in arrears. The municipality then attempts to hold the new owners of the property liable for payment of the historical debt.

The new owners, unaware of their legal rights, are bullied into making payment arrangements with the municipality to pay off the previous owners’ debts because they fear that their water and electricity supply will be cut off, or worse, that they might lose their property.

What to do in the event that the municipality threatens the new owners with disconnection

Remember that the purchasers are not liable for the previous owners’ municipal debts and it is unlawful for the municipality to cut off water and electricity supply to the property because of such debt.

Purchasers are advised to seek urgent legal advice in the event that they are faced with letters of demand for the payment of the previous owners’ municipal debts and/or threatened with the termination of their municipal services.

From Bissets, Boemke and McBlain Attorneys, Notaries and Conveyancers (May 2015)[/vc_column_text][/vc_column][/vc_row]

With thanks received  from Smith Tabata Buchanan Boyes Attorneys: Jan 2015

If you own an erf or a sectional title unit, you are liable for certain payments to the local authority with jurisdiction over the property. This local authority has the right to collect two types of contributions from property owners:

Rates and taxes:

The rates and taxes due in respect of a property are based on the value of the property. The municipality examines its budget and its need for income for a particular financial year and then distributes the tax burden amongst the property owners according to the valuation of the properties. The higher the municipal value of a particular property, the higher the amount of rates and taxes that will be payable.

Rates and taxes are determined annually, but do not necessary work on a calendar year; generally they are calculated to coincide with the local authority’s financial year. Some local authorities require property owners to pay their rates annually in advance (ie at the beginning of the term), while others require a monthly payment.

 

Amount charged for service:

Local authorities will bill property owners on a monthly basis for services rendered to the property, separate from and in addition to, the rates and taxes. These include services such as water, electricity, sewerage removal, refuse removal and the like. Water meters and electricity meters installed on each property measure the water and electricity consumption by the particular household or business, and the property owners receive monthly accounts for the services used.

These are known as ‘utility bills’.

Why is a rates clearance necessary in a property transfer?

The simple answer is that transfer of the property is not possible without it as the Deeds Registries Act prohibits the Registrar from passing transfer without such a certificate. This is favourable to a Purchaser who can rest assured that the rates for the 24 months preceding the transfer has been paid in full. The certificate does however not cover so-called ‘historic rates’, ie unpaid rates and taxes older than 24 months preceding transfer, which will remain a charge against the property itself. Ideally therefore, a sale agreement should address the possibility that such unpaid debts exist and ensure that the seller accepts liability for payment of these.

How is the rates clearance certificate obtained?

Nowadays the process is automated. In essence, the conveyancers will apply to the relevant local authority for the issue of ‘rates clearance figures’, and after payment of the due amount by the conveyancers, the rates clearance certificate is issued. A breakdown of the rates clearance figures is provided. The conveyancer collects the money from the seller and effects payment thereof (together with certain mandatory advance rates) to the local authority. On payment, the seller’s municipal account is credited accordingly. The seller can discontinue paying monthly rates for the period covered in the assessment.

Period of validity of a rates clearance certificate:

Rates clearance certificates are valid for 120 days after the date of issue. Thereafter they lapse and if the transfer is not yet registered by then, new figures will have to be applied for and the process is repeated.

Advance rates:

Generally the municipality’s assessment includes a charge for rates and taxes, electricity, water, sewerage and refuse for a period of 90 – 120 days in advance. This is a practical measure as the law states that a clearance must remain valid for 60 days from the date of issue. In order to cover the time it takes for the assessment amount to be paid and the 60-day period of validity, it is necessary to include an advance estimation.

This amount is not negotiable, but any overpayment will be returned to the seller by the local authority in due course.

Who pays for what?

It is generally the Seller’s responsibility to pay all the amounts raised in the assessment. The money must be paid to the conveyancer who will submit it, together with any other requirements, to the municipality.

Refunds and overpayment:

After transfer, the local authority’s rates department will process any possible refund and return the payment to the seller. This is an automatic process at many local authorities although with others, it may still be necessary to submit a refund application.

Depending on the turnaround times at the local authority, it may take some time for the new details to reflect on the local authority’s system. As a result, a purchaser may wait a few months before he receives his first rates and taxes bill in respect of the new property.

Maintenance defaulters are shortly going to find it much more difficult, if not impossible, to buy property, thanks to proposed amendments to the National Credit Act (NCA) regulations.

Now with maintenance payments added to the list of debt obligations they must include in their calculations, and maintenance defaults to be included when it comes to credit scoring, it is unlikely that anyone who is neglecting their maintenance obligations will be able to obtain a home loan or any other kind of credit, for that matter.

The amendments, which are due to be tabled in Parliament soon, provide for monthly maintenance payments to be added to the list of debt obligations that lenders must include when conducting the affordability assessments that are required before any new credit can be granted.

They also provide for any judgment against a maintenance defaulter to be added to that person’s credit record and to remain there for five years or until it is rescinded by a court.

Sadly, maintenance defaulting in all too common is South Africa, where almost half of all children are being raised by single parents, but the Justice Department is hoping that these amendments will help change this situation.

They anticipate that this will make it difficult for anyone who is not meeting their maintenance obligations to their children to then go and obtain finance to buy themselves a new home or investment property.

Currently, the NCA already stipulates that any bank considering a home loan application must first establish what the potential borrower’s income is, what his or her regular monthly expenses are, and what debt repayment obligations he or she already has as per any credit agreements listed by the credit bureaux.

“It also sets out stiff penalties for anything perceived to be ‘reckless’ lending, and we all know how this has affected home loan lending over the past few years, with the banks tending to err much on the side of caution.”

Now with maintenance payments added to the list of debt obligations they must include in their calculations, and maintenance defaults to be included when it comes to credit scoring, it is unlikely that anyone who is neglecting their maintenance obligations will be able to obtain a home loan or any other kind of credit, for that matter, he says.

Information supplied by FNB Homeloans

Portside, Floor 23, 5 Buitengracht Street, Cape Town
Web: www.fnb.co.za | Mobile: www.fnb.mobi
To see the full legal disclaimer pertaining to this refer to www.fnb.co.za
First National Bank - a division of FirstRand Bank Limited. An Authorised Financial Services and Credit Provider (NCRCP20).

A recent Supreme Court of Appeal judgment illustrates the importance of fulfilling suspensive conditions in an agreement and the consequences of not doing so.

On 11 April 2007, an agreement relating to a property development was entered into between Pangbourne Properties Ltd (Pangbourne) and Africast (Pty) Ltd (Africast). This agreement was subject to a suspensive condition that Pangbourne provide Africast with written notice that its board of directors had approved the purchase of the property within seven working days after conclusion of the agreement by the parties. The agreement was signed by both parties on 11 April, and was subsequently approved by Pangbourne's board of directors on 20 April 2007. Pangbourne provided Africast with written notice that Pangbourne’s board approved the agreement on 25 April 2007. From this date onwards, the parties acted on the basis that the agreement was valid and binding.

In 2008, 18 months after the signing of the agreement, and after buildings had been constructed in accordance with the contract, Pangbourne asserted that the suspensive condition in the agreement had not been fulfilled. And as such, Pangbourne refused to provide Africast with bank guarantees in respect of the fulfilment of its payment obligations under the contract. Africast considered Pangbourne’s new stance as repudiation and, as a result, cancelled the contract and claimed damages for breach of contract.

This claim was rejected by the South Gauteng High Court. Upon appeal to the Supreme Court of Appeal, the Court explained that upon conclusion of a contract containing a suspensive condition, the contract itself is enforceable, but some of its obligations are postponed pending fulfilment of the suspensive condition.

If the suspensive condition is eventually fulfilled, the contract is deemed to have existed from the date when the contract was initially concluded, as opposed to the date on which the condition was fulfilled. If the condition is not fulfilled, then the contract is deemed not to have come into being.

The Court confirmed that the suspensive condition had not been fulfilled and the contract never came into operation. Accordingly, the Court found in Pangbourne's favour, dismissing the appeal with costs.

The judgement of the Supreme Court of Appeal illustrates the importance of ensuring total and timeous compliance with a suspensive condition in a contract. As held by the Court, non-compliance with a suspensive condition vitiates a contractual agreement by rendering the contract void ab initio. As illustrated by the present case, this is the legal position even where one or both of the parties have already delivered performance in terms of the contract.

Information obtained from  Bisset Boehmke McBlain Attorneys, All rights reserved.

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