PROPERTY NEWS -  History was made on Tuesday 29 August when a unanimous constitutional court judgement was delivered by Judge Edwin Cameron, which declared that historic municipal debt attached to property cannot be collected from new property owners.

The impact that this has on the average resident is enormous. Many transfers of property have simply not taken place and prospective sales have fallen through because a vast amount is owed to the municipality in arrear rates and taxes.

We all know that until now property could not be transferred without a rates clearance certificate being obtained from the municipality.

Because of this, municipalities have been generally very lax and tardy in enforcing the collection of such outstanding debt as until now, they were secure in the knowledge that they would get their money when the property was sold.

This is now no longer the case. Judge Cameron made it perfectly clear that municipalities have adequate mechanisms in place to collect debts due and they must do so. 

They need the revenue generated to perform their constitutionally mandated duty of service delivery and, therefore, must ensure that arrear debts are collected. 

The provisions contained in Section 118 (3) of the Municipal Systems Act (MSA), which municipalities have till now relied on to collect the historical debt from new purchasers, has been declared unconstitutional.

It is uncertain what steps municipalities will now put in place to ensure that arrear debt is collected from the party responsible for incurring it and it is equally uncertain at this stage what impact this will have on the budgets and financial position of municipalities.

Debt due is reflected as revenue that will accrue to the municipality and impacts on the financial position of the municipality. Much of this may well have to be written off, as prescription may have set in, or the amounts may simply be irrecoverable.

Comment from acting CFO, Mr Trevor Maddison, Hessequa Municipality: "We are in agreement with Justice Edwin Cameron when he states that municipalities have adequate mechanisms in place to collect debts due. 

Hessequa Municipality has not exclusively relied on section 118 (3) of the Municipal Systems Act to collect historical debt from new purchasers. 

Those municipalities who have relied on this section will experience cash flow problems going forward.

The methodology that Hessequa Municipality follows is that upon receiving a rates clearance certificate application, all historical debt is handed over to an attorney for collection from the previous owner/s. 

This is only done if the debt has not already been handed over in terms of council's credit control and debt collection policy. This policy and the Municipal Property Rates Act provides adequate mechanisms to collect debt."

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