Clearance certificates – Does the municipality’s lien survive the transfer?

September 1st, 2013

City of Tshwane Metropolitan Municipality v Mathabathe and Another 2013 (4) SA 319 (SCA)

By Barry Cloete

The question whether a municipality’s lien survives the transfer was put to counsel by the Bench of the Supreme Court of Appeal in the matter of City of Tshwane Metropolitan Municipality v Mathabathe and Another 2013 (4) SA 319 (SCA).

The facts are briefly as follows:

Thomas Mathabathe, the then owner of Erf 1080 Kosmosdal, granted Nedbank, the mortgagee, a power of attorney to sell his property by public auction. Auction Alliance was appointed as the auctioneer. Mr Lawrence made an offer to purchase the property, which offer was accepted by Mr Mathabathe.

The conveyancers instructed to attend to the registration of transfer of the property applied to the appellant, the City of Tshwane Metropolitan Municipality (the municipality) to issue them with the requisite clearance certificate contemplated by s 118(1) of the Municipal Systems Act 32 of 2000 (the Act).

The municipality issued a statement recording that the total amount due was R 162 722,26, which included what had been termed as ‘historical debt’, that is, debt due to the municipality for services prior to the two years envisaged in s 118(1)(b) of the Act.

The conveyancers’ endeavours to persuade the municipality to exclude the amount of the historical debt were unsuccessful. The municipality sought an undertaking from the conveyancers that the historical debt will be paid to the municipality on the date of registration of the property into the name of the purchaser, or within a reasonable time thereafter (ie, 48 hours).

Mr Mathabathe and Nedbank applied to the North Gauteng High Court to order the municipality to issue a statement limited to the amounts due for municipal services during the two years preceding the date of application for the certificate and to issue a certificate on payment of that limited amount.

The municipality opposed the application and, in a counter-claim, sought the relief that Mr Mathabathe and Nedbank be ordered to pay the historical debt and that the transferring attorneys provide the municipality with an undertaking to pay such debt.

The matter was heard by Gooddey AJ who granted the relief sought by Mr Matha­bathe and Nedbank and dismissed the municipality’s counter-claim. The municipality sought and was granted leave to appeal, which appeal was limited to the dismissal of the counter-claim.

The SCA, in dismissing the appeal, discussed the provisions of ss 118(1) and 118(3) of the Act. Section 118(1) provides as follows:

‘A registrar of deeds may not register the transfer of property except on production to that registrar of deeds of a prescribed certificate –

(a)     issued by the municipality or municipalities in which that the property is situated; and

(b)     which certifies that all amounts that became due in connection with that property for municipal service fees, surcharges on fees, property rates and other municipal taxes, levies and duties during the two years preceding the date of application for the certificate have been fully paid.’

The court ruled that s 118(1) is, accordingly, a veto or embargo provision with a time limit, and that s 118(3), which provides that ‘[a]n amount due for municipal service fees, surcharges on fees, property rates and other municipal taxes, levies and duties is a charge upon the property in connection with which the amount is owing and enjoys preference over any mortgage bond registered against the property’ is a security provision without a time limit.

In his judgment Ponnan JA. referred to the judgment of Nugent JA in the matter of City of Cape Town v Real People Housing Limited 2010 (5) SA 196 (SCA).

In the Real People judgment, Nugent JA found that ‘they [the municipalities] are assisted to fulfil that obligation [to collect money that becomes payable to them] so far as debts relate to fixed property in two ways. First they are given security for repayments of the debt, in that it is a charge against the property concerned. And secondly, municipalities are given the capacity to block the transfer of ownership of the property until debts have been paid in certain circumstances’.

The court also referred to the judgment of Brand JA in BOE Bank Ltd v Tshwane Metropolitan Municipality 2005 (4) SA 336 (SCA) where it was stated that s 118(3) ‘is on its own wording an independent, self contained provision’ (at para 8).

In summary:

  • Municipalities are obliged to issue a clearance certificate on payment of any amounts due in connection with that property for municipal fees, property rates, municipal taxes, levies and duties limited to two-year period preceding the date of application (s 118(1)).
  • Municipalities have a lien ‘having the effect of a tacit statutory hypothec … and no limit is placed on its duration outside of insolvency … so that a municipality enjoys preference over a registered mortgage bond on the proceeds of the property’.

The answer to the question posed is therefore ‘yes’.

A purchaser of immovable property, not bought from an insolvent estate, can no longer accept that, on registration of transfer, he or she acquires the property free of any municipal debt.

Municipalities can, after issuing a clearance certificate and the transfer of the property to the purchaser, enforce its lien against the property, sell it and apply the proceeds of the sale to settlement of its debts in preference to the claim of any mortgagee.

This of course also creates a problem for financial institutions advancing loans to acquire properties on security of the registration of a mortgage bond.

The phrase caveat emptor is very fitting in these circumstances. One of the judges in the Mathabathe case was of the opinion that it would not be difficult for any purchaser to approach the municipality to ascertain whether there are any historical debts due. With respect, I do not believe that it is as easy as it sounds. Recordkeeping by municipalities often leaves a lot to be desired and the information is not as readily obtainable as it should be.

A further concern is what would happen if municipalities were only to discover the historical debt sometime after a clearance certificate has been issued and the property in question has been transferred? Can it now claim that, at the time of issuing a clearance certificate, it was unaware of the historical debt but has only now discovered it? In my opinion this creates legal uncertainty and confusion.

In the light of the above, I am of the opinion that conveyancers will now be duty bound to obtain a complete statement from the municipality reflecting the current debt (ie, for the two years preceding the application) and the historical debt and to advise the purchaser thereof. This could, of course, scupper any sale agreement where the seller is forced to sell its property and the purchase price is not sufficient to cover both the existing bond and the total amount owning to the municipality. The answer would then be to sequestrate such a seller, which would create a further charge on the proceeds of the sale.

I am of the opinion that municipalities have also added to this uncertainty by not creating their debts as diligently as one would expect and, in this regard, I would like to quote Yacoob J in the matter of Mkontwana v Nelson Mandela Metropolitan Municipality and Another; Bisset and Others v Buffalo City Municipality and Others; Transfer Rights Action Campaign and Others v MEC, Local Government and Housing, Gauteng and Others (KwaZulu-Natal Law Society and Msunduzi Municipality as Amici Curiae) 2005 (1) SA 530 (CC) who observed: ‘[T]he applicants emphasise that a municipality cannot sit by and allow consumption charges to escalate regardless and in the knowledge that recovery will be possible whenever the property falls to be transferred. They are right. The municipality must comply with its duties and take reasonable steps to collect the amounts that are due.’

Barry Cloete BA LLB Dip Company Law (Stell) is an attorney at Matsepes Inc in Bloemfontein.

This article was first published in De Rebus in 2013 (Sept) DR 46.