Am I really responsible for the municipal debts of a previous owner?


The question that was on everyone’s lips whilst uncertainty roamed as our courts have not had the opportunity to test the constitutionality of Section 118 of the Municipal Systems Act (MSA). Well that time has come and the Constitutional Court has spoken.

The Constitutional Court recently handed down judgement in Jordaan and Others v City of Tshwane Metropolitan Municipality and Others, and declared that a new owner is not liable for the previous owner’s debts arising before transfer of the property.Section 118(3) has been the cause of a lot of concern for home owners as this section is viewed as enabling a municipality to hold a new home owner responsible for the arrear municipal debts of a previous owner. According to this section, an amount due for municipal fees is a charge upon the property and enjoys preference over any mortgage bond registered against the property, thereby creating a security provision in favor of the municipality for the payment of the outstanding debts. No time limit is attached to this provision and it does not matter when the secured debt became due. The Court held that section 118(3) does not require public formalisation (e.g. registration in the Deeds Registry) and this is required to give notice of its creation to the world. The Bill of Rights prohibits arbitrary deprivation of property, which would happen if debts without historical limit are imposed on a new owner. Therefore, to avoid unjustified arbitrariness in violation of section 25(1) of the Bill of Rights, section 118(3) of the Municipal Systems Act must be interpreted so that the charge it imposes does not survive transfer to a new owner.According to the Constitutional Court, section 118(3) is not unconstitutional and is well capable of being interpreted so that the charge does not survive transfer to the new owner and it declared that, upon transfer of a property, a new owner is not liable for debts arising before transfer from the charge upon the property under section 118(3) of the Local Government: Municipal Systems Act 32 of 2000.

Jordaan and Others v City of Tshwane Metropolitan Municipality and Others

Author: Natalie Steenkamp, Associate, Phatshoane Henney Attorneys

MEDIA STATEMENT:  Fitch Ratings (Fitch) affirmed South Africa’s long term foreign and local currency debt ratings, outlook remains stable

Fitch has affirmed South Africa’s long term foreign and local currency debt ratings of ‘BB+’ with a stable outlook.
Fitch has cited that despite the country’s credit strengths of deep local capital markets, favourable government debt structure and a track record of fairly prudent fiscal and monetary policy, South Africa’s ratings continue to be weighed down by:

· Low potential economic growth;
· Sizable contingent liabilities; and
· Deteriorating governance of state-owned companies (SOCs).

According to the rating agency, “the March 2017 Cabinet reshuffle that triggered the downgrade of South Africa’s ratings is likely to undermine governance of SOCs, weaken fiscal consolidation and reduce private sector investment as a result of weaker business confidence”.

The rating agency is also of the view that “while efforts to improve the SOC governance framework will continue, implementation decisions, for example on appointments of senior SOC management, will hamper these efforts and could lead to weaker financial positions of SOCs and higher contingent liabilities for the government”.

Government notes the decision of Fitch and expresses gratitude to all the stakeholders who participated in the meetings with the rating agency and ensured that the country is not downgraded further.

Nonetheless, government emphasises that fiscal consolidation remains firmly on track and government’s efforts remain focused on improving the growth trajectory and policy perceptions. Minister Gigaba is currently re-engaging with the private sector to make sure that the joint work of government, business, labour and the civil society continues and that the pledges made thus far are fulfilled.

The leadership in government and the ruling party are firmly committed in improving business and investor confidence in South Africa. As Fitch has rightly mentioned, rhetoric of “radical socioeconomic transformation” does not imply a fundamental policy shift. The main focus of government is to address the long-standing goal of inclusive growth. Fast-tracking the implementation of the structural reforms on growth and addressing the financial and governance issues of some of the SOCs are priorities in the short term.

This outcome demonstrates that South Africans must continue to act in unison especially during difficult times and work even harder to make sure that the country reclaims its investment grade status.

More work lies ahead and as such the National Development Plan, as the overarching policy of government, will continue to drive the decisions aimed at achieving inclusive growth and eradicating the rippling socio-economic challenges of unemployment, poverty and inequality.

Issued on behalf of National Treasury
Date: 01 June 2017

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