South Africans were outraged recently when the High Court found that property owners were responsible for historical debt. On the face of things, they have lots to gripe about, after all how on earth is it possible for an individual to be held legally responsible for another person’s lack of payment? Three decades is a long time in anyone’s book, but in theory, that is how long a municipal debt remains payable. Unlike civil law debt where the matter generally prescribes after three years, this form of historical debt won’t simply go away and the municipality has as long as 30 years in which to claim the outstanding amount. In other words, there is a possibility that homeowners could be held liable for the payment of historical debt.
Buying a home and then finding out that thousands upon thousands of rand is outstanding because the previous owner(s) didn’t settle their accounts is pretty daunting for any buyer. However it is equally daunting for those who have been living in the home for a lengthy period of time to suddenly be slapped with a huge historical debt bill by the municipality.
Believe it or not, court case rulings are not cast in stone, mainly because the merits and facts of any particular matter may vary from case to case. For instance the case that essentially led people to assume that they could automatically be forced to settle historic debt was different to most. Basically, the story involved a person who originally bought the property on auction and although he was aware of the historical debt, came to an agreement with the municipality concerned and only settled part of the bill. The fact that he never lived in the home or connected any municipal services before he sold the property played a role in the agreement. However, not paying the bill didn’t mean the money wasn’t still owed and the municipality demanded that the historic debt be settled by the subsequent buyer. It is also worth noting that in light of the recent judgement, the City of Johannesburg has vowed that it won’t lump buyers with historical debt; instead it will ensure that the current owner settles all debt before transfer.
While this is certainly great news for buyers, it may cause serious problems for sellers, particularly those who are selling because of affordability issues. Generally speaking one of the biggest outlays for sellers not planning to or unable to afford to invest in a new property is the estate agent’s commission, but this is only payable once transfer has taken place and is automatically deducted from any monies made from the sale. Historical debt is due, owing and payable before the transfer goes through and before any profits from the sale have found their way into the seller’s pocket.
“It’s little wonder that some sellers have become skittish about historical debt,” says Christo Jonker, Prevance Capital marketing manager. “Perhaps the one saving grace is that municipalities cannot simply decide that the debt is outstanding and saddle the current owner with a huge bill for the debt incurred by the previous owner(s). By law they have to make every attempt to find the defaulting party and can only pin the debt on the current owner if it can show that the defaulting party is untraceable.”
He notes that it’s at times like these that bridging finance is invaluable. “Many people don’t realise the value of their asset, but we do. Although there may be the odd exception, generally speaking, the required funds are available with 24 hours of approval. Our company can offer as much as 75% of the net proceeds (after the settlement of existing bonds and other expenses) before the actual transfer takes place. It’s a win-win situation for all concerned. The advanced funds ensure that the property is transferred timeously, benefiting the buyer and the seller, and the municipality gets its money for services rendered,” he says.
Words by Lea Jacobs