Can a potential/current owner of a property be held responsible for historical municipal debts (municipal service fees, levies, rates etc) incurred by previous owners? This was the question before the Supreme Court of Appeal (“SCA”) in City of Tshwane Metropolitan Municipality v Peregrine Joseph Mitchell (38/2015)  ZASCA 1 (29 January 2016), which upheld the appeal from the Pretoria High Court. The SCA, ruling against the High Court’s decision, held that a municipality may still recover historical debts from a new owner and noted that nothing would prevent a municipality from perfecting its security over the property (which would involve obtaining a court order, selling the property in execution and applying the proceeds to pay off the historical debts).
In essence, section 118(3) of the Local Government: Municipal Systems Act, No. 32 of 2000 provides a municipality with a form of security over a property where there are amounts due in respect of municipal services. The High Court (the court a quo) distinguished between private sales and sales in execution stating that the latter extinguishes the statutory hypothec in terms of a common law exception, and held that a successor in title (the new property owner) does not become a co-principal debtor of the historical debt to the Municipality. The SCA, however, stated that the distinction was unjustified and that the High Court’s reliance on the exception created by the common law was misplaced. The SCA held that the hypothec that exists in favour of a municipality is not extinguished on transfer of the property from the owner (or any prior owner) who incurred the debts to a third party, regardless of whether the sale was one in execution or otherwise.
Despite the adverse implications of this case, the SCA agreed that a municipality is obliged to first comply with its own by-laws before seeking relief against a current owner. It is therefore required by a municipality to show, inter alia, that the person who had entered into the contract to receive the municipal services cannot be traced or has absconded, is unable to pay or does not exist. At this stage, it is unclear whether this case will be the final determination of the issue of historical municipal debts. Property owners, banks and other stakeholders are hoping that the matter will be referred to the Constitutional Court; watch this space for any further updates.