Landmark ruling on historical debts

Municipalities cannot hold new property owners responsible for the historic debt for municipal services of previous owners.

This ground-breaking ruling was made in the Gauteng High Court, Pretoria, yesterday, and will have far-reaching consequences for millions of residential and business property owners, the property industry as well as municipalities themselves.

So said attorney Gary Ross, who explained that the judgment would not only save unknowing property buyers from being forced to pay former owners' old debts to have services reconnected.

It would also force the municipalities themselves to actually start doing the work of collecting debt and not expect new owners to finance the debt.

Yesterday, Judge Dawie Fourie declared the provisions of section 118(3) of the Local Government Municipal Systems Act, which provides for this, constitutionally invalid to the extent only that the security provision, "a charge upon the property", survives transfer of ownership into the name of a new or subsequent owner who is not a debtor of the municipality with regard to municipal debts incurred prior to such transfer.

"Tshwane and Ekurhuleni municipalities were ordered to render municipal services where no debt exists in respect of municipal services between the municipalities and the new owners.

"The municipalities were 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," Judge Fourie said.

Ross said: "The practice by municipalities in holding new owners liable for the payment of historical debts of previous owners or tenants of previous owners was declared unlawful and invalid and this is great news all round."

In a shock move earlier this year, the Supreme Court of Appeal ruled that new property owners could be held liable for historic debts dating back 30 years.

However, the judge stated that he had ruled only on the legality of S189 and not on the constitutional implications of the by-law. This finding was based on the court's interpretation of section 118 as interpreted against the backdrop of the South African common law relating to hypothecs, he said.

Ross said the judge made it very clear at the time that his judgment did not consider constitutional aspects. Five parties, all of whom are having similar problems with new owners not being given services, got together for yesterday's case.