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:
- A form of tax which it may utilise to fund its operations, called ‘rates and taxes’.
- Payment for the services rendered to the property owner, such as electricity, water, refuse removal and sewerage services, generally referred to as ‘services’.
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.
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.