A recent High Court ruling is providing great relief for new property owners across South Africa who were previously responsible for the old municipal debts associated with their buildings.

On the 8th of November, the media reported that Judge Dawie Fourie of the Gauteng High Court had ruled section 118(3) of the Local Government Municipal Systems Act constitutionally invalid, thereby releasing new property owners from any obligation to pay old municipal debts.

Smoother and fairer property transactions lie ahead

Until the recent landmark ruling, estate agents and conveyancing attorneys across the country had to ensure that no municipal back-payments were due on a property before transfer took place.

A number of cases involving unscrupulous sellers who knowingly signed deeds of sale without settling their municipal debts, resulting in a huge liability for the new owner, had made buyers wary. As a result, property transfers would be delayed until proof could be provided that all debts were settled – but this may no longer be necessary in the future.

Municipalities may need to improve collection 

Previously, municipalities relied on the fact that unsettled debt would give sellers an incentive to pay up before the sale of property went through – and if they didn’t, the debt would have to be paid by the new owner.

Since this is no longer the case, there will be added pressure on local government to collect revenues on time.

While some municipalities in South Africa are quite efficient at revenue collection, there is certainly room for improvement – and it may be that rates are increased in some parts of the country to make up for the shortfall.

Only time will tell how the Fourie ruling will impact municipal rates, but property owners can stay ahead by paying their rates and utility accounts diligently each month.

Good news for buyers, sellers and the commercial property sector

Now that property buyers are no longer liable for old municipal debts, a major stumbling block has been removed from the property sale process.

Sellers who are financially troubled and resort to selling their properties will also feel less pressure to settle their municipal debts before the transaction is allowed to go through, giving them an opportunity to clear their debt after they receive payment from the buyer.

Overall, the effect of this ruling on the commercial property sector is expected to be positive and it comes at just the right time – as South Africa’s property sector continues to outperform many other areas of the economy.

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