What if a previous owner owes money to the local authority?

In this case (8334/2021), the first Respondent (the seller) and the Applicant (trustees authorised to act on behalf of the purchaser) entered into a deed of sale in 2019, where the seller agreed that they would pay the following costs: the bond cancellation fees, clearance certificate cost, and the outstanding rates and taxes and water and electricity due to the local authority.

During the transaction, the new owner was made aware that the seller’s account with the local authority was in arrears and that the electricity would be disconnected unless payment was made to council. The seller was also aware of the arrears account but disputed it.  

New transfer attorneys were appointed, and the property was transferred into the name of the purchaser in July 2020 after the rates clearance certificate was handed to the transfer attorneys.  

The new registered owner visited the local authority to change the services account for rates, taxes, levies, and electricity from the previous owner’s name to their name. This request was refused, however, and the new owner was informed that the previous owner still owed an amount to the Ekurhuleni Metropolitan Municipality.

When the new registered owner then presented the clearance certificate which they received from the transfer attorneys to the local authority, they were advised that it was a fraud and not valid.

The new owner requested relief against the local authority so that they would have full use and access to the property they had just purchased. The second Respondent (the local authority) then made a counterclaim in which they sought an order setting aside the clearance certificate obtained by the previous owner as well as an order that the previous owner still owed the local authority money in respect of the property.  

The outcome

The court dismissed the local authority’s counterclaim as it found at paragraph 45: “… the Municipality has not taken any legal action in terms of their credit regulations to recover the money that it says the seller [….] owes to it. In trying to mitigate their failure to act the second Respondent has seen it fit to hold the Applicant to Ransom.”  

The court further confirmed that the local authority did not cite the Deeds Registry Office in its counter application directing them to cancel the title deed.

At paragraph 49, the court held: “What the second Respondent wants to achieve in the counter claim is contrary to the decision laid down by the Constitutional Court in the matter of Jordaan and Others v Tshwane Metropolitan Municipality and Others 2017 (6) SA 287 CC. The second Respondent is trying to recover a historical debt due and owing to it by the seller in a rather dubious manner by denying the Applicant who is the purchaser and a new owner its right to enjoy the benefit of the property.”

As a result, the court ordered the local authority to:

• Amend its records to reflect the new owner of the property.
• Open a municipal account in the new owner’s name.
• Supply electricity to the property within three days after payment received by the plaintiff in respect of the plaintiff’s account from date of registration to date of the order.  

As demonstrated in this case, a local authority is not entitled to refuse to open a new registered owner’s account on the basis that there is an amount still due by the previous owner. It’s also clear that fraud was committed with regards to the rates clearance certificate – this should serve as a warning to conveyancers to always scrutinise the certificates they receive and to ensure that they use trustworthy consultants.

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Written by Wessel de Kock

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