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Purchasers protected

2 October 2014

Amendments to S 118 protect the purchaser from being held liable for the historical debts of the seller. With reference to the various municipalities and judgements holding the purchaser responsible for the seller’s arrear municipal debts, after transfer, in terms of S 118(3), it appears that section 118 of the Local Government: Municipal Systems Act was amended to protect residential purchasers and bondholders, as far back as December 2002.

There was a generally unnoticed subsequent amendment in the form of S 118(5) that excludes the provisions of the wide-ranging ambit of S 118(3) as far as pre-transfer debts are concerned. The problematic S 118(3) provides that a historical debt is a charge upon the property and enjoys preference over any mortgage bond. However, the subsequent amendment in the form of S 118(5) simply provides that the above S 118(3) does not apply to any debts that became due before the transfer of the property.

In support of S 118(5), S 118(4) also refers to the collection of debts at the time of such transfer. Subsections 4 and 5 were added to Section 118 by virtue of Government Gazette No. 24149 dated 5 December 2002 under the Local Government Laws Amendment Act 2002.

The amendments read as follows:

(4) Subsection (1) does not apply to-

(a) a transfer from the national government, a provincial government or a municipality of a residential property which was financed with funds or loans made available by the national government, a provincial government or a municipality; and
(b) the vesting of ownership as a result of a conversion of land tenure rights into ownership in terms of Chapter 1 of the Upgrading of Land Tenure Rights Act, 1991 (Act 112 of 1991):

Provided that nothing in this subsection precludes the subsequent collection by a municipality of any amounts owed to it in respect of such a property at the time of such transfer or conversion.

(5) Subsection (3) does not apply to any amount referred to in that subsection that became due before a transfer of a residential property or a conversion of land tenure rights into ownership contemplated in subsection (4) took place.

Because S 118(3) excludes residential debts incurred before transfer, it would appear that it is unlawful for any action to be taken against a purchaser after transfer, for debts occurred before transfer.

Denoon Sampson

Reader Comments: 2
Ken Mustard 02/10/2014:

My understanding is that the "transfer" in sub section (5) refers to a transfer from a national or provincial government or municipality as contemplated in sub section (4) and not residential transfers in general.

Lynette 02/10/2014:

S118(1) prohibits transfer unless a clearance certificate as contemplated thereby is obtained. S118(3) deals with the Local Authority's preference over a mortgagee whereas S118(4) stipulates that Transfers from a government institution and Conversions to full title in terms of the Upgrading of Land Tenure Rights Act are excluded from obtaining clearance in terms of S118(1). S118(5) specifically stipulates that the Local Authority does not have preference over any debt incurred before Transfer/Conversion as contemplated by S118(4). As S118(3) deals only with preference, no inference can be drawn that the Local Authority may not take action for historic debts either against the purchaser or seller.

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