Historical property debt – is this a concern for new owners?

Picture yourself becoming the new owner of your lovely new home, only to find out months down the line that the previous owner racked up a serious amount of municipal debt!

Not only are you stuck with someone you don’t know old bills, but you’re also about to have your water cut.

Sounds like a nightmare, but luckily due to the latest ruling in the Pretoria High Court, it might not be. This ruling stated that any property owners or tenants will not be burdened with historical municipal debt from previous bad paying owners of the buildings.

This was due to several property owners streaming through the courthouse after their properties, electricity and water were switched off as a result of outstanding bills in the local metros. The court listened to the people and ruled in their favour by stating that the section of the Local Government Municipal Systems Act, which allowed such action of switching off electricity and water for this was constitutionally invalid.

Justmoney offers advice on this predicament and explains the responsibilities for each party when it comes to purchasing a property.

What exactly does the High Court ruling mean for you?

Lew Geffen, Chairman of Lew Geffen Sotheby’s International Realty, commented on the ruling by the Pretoria High Court, stating that having declared a section of the Local Government Municipal Systems Act constitutionally invalid is a huge win for the people of South Africa.

It’s rather sad when you consider how many families have already dealt with the financial burden concluding all these debts. Numbers of over 300 000 were concluded, which leaves very few that will experience the relief of this new ruling.

Just because they were concluded does not mean to say that they came off unscathed. In actual fact, many, if not most lost their homes as a result of the debt that they were faced with. Some even lost their jobs!

There mere fact that law existed, whereby debt was attached to an asset as opposed to an individual makes no sense. It pretty much means that you could live a municipal debt-free life if you take on the traits of a gipsy when you’ve racked up enough that you can’t afford to pay back. Doesn’t matter though, the next guy will get it? That in itself is quite honestly just a poor law. How are sellers getting away with it though during the sale? That’s the next faux pax in the system, the seller only has to produce a 24-month rates clearance certificate in order to proceed with a sale.

This new ruling is quite certainly the correct way forward in terms of legislation, but as with everything, when it comes to the constitutional validity of any Act, one simply cannot just make a noise and receive resolution, you would still need to turn to is the Constitutional Court, and at this stage, we’re waiting for them to make this law concrete so that homeowners around South Africa can purchase a new home free of any worry involving historical debt.

At some stage, we’re all hoping that sanity will prevail and that the higher courts too, choose to approve this law going forward. It’s still required to approve in the Tshwane and Ekurhuleni metros, which ultimately means this law is still at risk of being tested.

Should you be informed about historical debt?

Let’s face it when someone wishes to sell their property they certainly don’t want to air the financial burdens that come along with it at the risk of losing the sale. But according to some estate agencies, legally, sellers are obliged to disclose this information to potential buyers.

Others tend to disagree and comment to say that where historical debt is concerned, it is a matter of confidentiality. No one should or would be able to have access to someone’s municipal records in order to check up on any pre-existing debt. Anyway, none of that matters anymore since the new ruling is now in place to protect the buyer through scenarios such as these, and why should one person have to pay the debts of another?

Another party in the sale that possesses the records of the property, is the transferring attorney. But he, too, won’t disclose this information to the buyer, leaving out any and all outstanding historical debt information until the transfer has taken place. This is due to the privacy and confidentiality of the seller and his records.

Let’s not forget that law aside, if you as a new homeowner discover that there is some serious debt attached to the property, you are still well within your rights to sue the seller in order to regain the funds that you would need to pay to settle the debts. Bear in mind that legal costs can rack up pretty quickly and you don’t want to break even on your efforts, so do your homework financially before taking this on. That said, you are very likely to win if the seller was aware of the debt at the time of the sale and intentionally hid that information from the buyer.

The new ruling in South Africa will hopefully mean not needing to worry about fighting in court with anyone and that in future he who incurs the debt, owes the debt!