Municipality Position

The municipalities that were involved in the matter were Tshwane, Ekuhuleni and eThekweni municipalities and the basis of their arguments were that they were not acting in terms of the national legislation that was being challenged and assessed for constitutionality, but in terms of the by-laws and policies which permitted their approach. Furthermore, the municipalities argued that their obligation to provide services to the whole community and the interest of the community at large justifies the misalignment of the onus. It was also put forth that the duty to establish any historical debt due to the municipality lay with the prospective purchaser.

Judgement

The court in establishing its’ jurisdiction, dismissed the municipalities’ claim that the national legislation was not in question as the by-laws and policies are formulated in terms of the Local Government: Municipal Systems Act 32 of 2000 and to distance them from this Act would be a misrepresentation. The court consolidated the issues of appeal and assessment of the High Court decision despite the submission that the matter could be resolved without declaration on constitutionality because the court emphasised that “virtually all issues…are ultimately, constitutional.”

The court assessed the section in question in terms of the history and background of the legislation and determined that the need to simplify the requirements of the local authority’s fund recovery process was catered to in the form of the embargo (requirement of a rates clearance certificate prior to transfer of immovable property) created in s118(1) of the Act and an automatic bond of security over immovable property in favour of the municipality for the amount due to the municipality for rates created in s118(3) of the Act. The method adopted by the Minister of Cooperative Governance and Traditional Affairs and the municipalities that the monies can be claimed from new owners was placed in conflict with the legal principle which dictates that a real right of security over immovable property can only arise by giving notice of its creation to the world in general and it was inferred that it cannot have been the intention of the legislature to create a real right of security in the section as it did not incorporate this principle.

The court noted that any amounts due to the municipality are outstanding as a result of the municipalities failure to collect the amounts and they are placed in notice by the requirements of the embargo provision of the Act and are made aware of the transfer of the property. The municipality at this stage has the avenue of refusal of issue of the clearance certificate pending the settlement of the full amount due or even the option of application to court for an order to sell the property in execution before the transfer. The municipalities did concede that the option of collecting from the new owner should be a last resort and that should the court find that there are sufficient opportunities to collect from the debtor, that there would be little reason that the debt should survive transfer attached to the property.

The court in consideration of the new owners’ and new bondholders’ positions stated that the application of the section as it was being done, constitutes an arbitrary deprivation of their rights. In the case of the new owner who has paid for the added value of the property being in an urban location and receiving the benefit of municipal services, requiring them to again, by paying the historical debt, pay for this value amounts to a constitutional deprivation. More obviously, for bondholders and new owners, their investment of funds to be rendered less valuable due to the debt that attaches to the property without their knowledge substantially interferes with their rights of security and ownership respectively.

In conclusion, the court held that if section 118(3) meant that the debt would be carried over and payable by the new property owner, the section would be unconstitutional, but there is an interpretation of the section which lends itself to constitutionality; in that the debt to the municipality and is preferent to a mortgage bond; therefore section is not unconstitutional. However, the conduct of the municipalities did warrant the matter being heard and decided upon and the new owners had substantially emerged victorious as the interpretation of the section as it was being applied was incorrect and the municipalities are not entitled to pursue collection from new owners.