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A benchmark judgment regarding the payment of municipal rates, a victory for new homeowners

Municipalities which insist on charging property rates for full financial years before issuing owners with clearance certificates in order to sell, have been dealt a blow by the Supreme Court of Appeal.
In March the court delivered a benchmark judgment in the case of Nelson Mandela Bay Municipality versus Amber Mountain Investments 3 when it ruled that property owners do not have to pay total rates on properties for financial years not completed.

Owners are liable for rates on the property only until such time as ownership is transferred.

In this case, Simphiwe Shozi, a senior associate at Shepstone and Wylie’s property and conveyancing department, said the property owner sold the property in Port Elizabeth to another company, but before transfer of the property, needed to obtain a rates clearance certificate from the municipality.

“Since the municipality’s financial year commences on July 1 in a year and ends on June 30 the following year, the municipality required from the respondent, as a condition for furnishing the certificate, payment of rates until the end of its financial year, in this instance June 30, 2010.

“Having been presented with the account of R2.28 million by the municipality, the respondent, under protest, paid the amount to obtain the certificate.”

The actual indebtedness of the respondent to the municipality was R1.21m, meaning the respondent overpaid by more than R1m – an amount it claimed back.

In the Eastern Cape Division of the High Court, the municipality contended that, considering the relevant provisions of the Municipal Rates Act, the respondent was obliged to pay full property rates on the property for the financial year from July 1, 2009 until June 30, 2010 to obtain a rates clearance certificate.

“The court, however, found the respondent was obliged to pay rates on the property only until the date of transfer of the property. Dissatisfied with the court’s findings, the municipality appealed to the SCA,” Shozi said.

But in findings against the municipality, Shozi said the court held that having regard to the definition of “financial year” and the relevant provisions of the rates act, the words “payable as from” must be interpreted to mean the rate is payable within the period of the financial year and not until the end of the rate year.

“Furthermore, the SCA held that to protect the rights of property owners in selling their property, the said phrase must be interpreted narrowly to mean ‘payable’ fixes the rate only for the financial year, and does not mean the rate is also payable at the same time.

“Lastly, the court held the municipality’s rates policy, which prior to the issuing of a rates clearance certificate insisted on payment of all rates, fees and charges in respect of the property for the entire current financial year – even where this period extended beyond the date of the certificate – contradicted the express terms of the statute.”

Shozi said this case signified “a great victory” for property owners.

He said: “For the purposes of obtaining a rates clearance certificate, the owner’s liability for municipal debts is limited to the two years preceding the date of application for the certificate, and doesn’t apply to future municipal debts.”

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