How Much Can a Municipality Demand a Seller to Pay when Calculating Rates Clearance Figures?

Introduction

This article explains how it is not necessary, in every instance, for a seller of a property to pay all outstanding rates, taxes and service charges, in order to obtain a Rates Clearance Certificate ("RCC") needed to pass transfer. This is a little-known fact amongst the general public, and in some instances, municipalities rely on this lack of general awareness about this fact in order to pressure sellers to pay amounts that they dispute or otherwise need not pay in order to obtain their RCC.

Two Types of Clearance Certificates

Many people are not aware of this, but there are actually two types of Rates Clearance Certificates ("RCC") that a seller could obtain when needing to transfer a property. The first is known as an "abridged" (2 year) clearance (in terms of s118(1) of the Local Government: Municipal Property Rates Act). This type of RCC requires that the seller pay only the amounts incurred in relation to the property for the two-year period prior to application for clearance figures. Any amounts incurred prior to the two-year period concerned, are not required to be paid, in order to obtain this type of clearance certificate.

Transfer can be passed on this type of clearance certificate without anything more. However, this does not mean that the seller does not owe the municipality any balance owing that is unpaid when the RCC is obtained - the seller remains indebted to the municipality and must make arrangements for payment, or continue to dispute these amounts, until the finality of that dispute. The municipality might choose to take legal action to prompt or compel payment of these amounts, even after transfer, as these amounts do not "disappear" and remain owing to the municipality unless settled or written off.

The other type of RCC is known as a "full" or "historical" clearance (in terms of s118(3) of the same Act). This type of clearance requires payment in full of all amounts outstanding by the seller, no matter how long ago they were incurred. This is the most commonly obtained type of RCC and transfer can be passed on same.

Agreement by the parties

The parties to a sale agreement can expressly agree as to which type of RCC must be obtained by providing for this in writing in the offer to purchase or sale agreement expressly. Sometimes, however, no stipulation is made as to what type of RCC must be obtained in which case it is open to a seller to apply for either type, as both will facilitate transfer in the Deeds office.

Risk to the Purchase when an Abridged Clearance is Obtained

In short, there shouldn't be any risk to the purchaser if an abridged clearance is obtained, because the Constitutional Court confirmed in the famous "New Ventures" judgment that the municipality cannot hold the purchaser liable for any seller's historical debts, and further cannot prejudice a purchaser in any way (for example, by refusing to open a new account for the purchaser) until the seller's historical debt has been paid.

Abuse by Municipalities

Unfortunately, it happens often that municipalities do not distinguish between these two types of RCC's, and when an application is made for a RCC, the only process available for a conveyancer (who is attending to a transfer on behalf of the seller) is for application for a full or historical clearance. The municipality simply does not have a process for applying for an abridged clearance. This is unlawful. If a seller asks for an abridged clearance, it is not lawful for a municipality to refuse to give clearance figures for this type of RCC. The municipality must adjust its processes to provide for a calculation of figures that only include the debt incurred two years prior to transfer.

If a municipality refuses to do this, you can bring a court application to compel the municipality to provide the seller with adjusted figures for an abridged clearance. Unfortunately, at Schindlers, we have had to do this many times against many municipalities all across South African because they sometimes do not appreciate what they are entitled to receive payment of, when a seller requests an abridged RCC. In these cases, we obtain a cost award against the municipality to assist the seller in recovering some of the legal costs of taking the municipality to court.

Conclusion

Sellers who either cannot afford to pay the full clearance figures or who have a dispute in relation to older charges are not legally obliged to pay amounts that are older than two years when applying for and obtaining a RCC. If you are forced into a corner by a municipality that refuses to provide you with accurate rates clearance figures you may need to bring a court application to compel them to comply with the law.

VALUE

Transfer can be passed on with an abridged clearance certificate. The Municipality can not hold the purchaser liable for any sellers' historical debts, further may not prejudice the purchaser in any way until the seller's historical debts has been paid.

Article written by S'negugu Dlamini, Candidate Attorney, checked and released by Chantelle Gladwin-Wood, Partner at Schindlers Attorneys