Relief for homeowners, banks as ConCourt rules on historical debt

The Constitutional Court in the Case of Chantelle Jordaan and others V City of Tshwane Metropolitan had to determine if Section 118(3) of the Local Government Municipal Systems Act 2000 which provides "an amount due for municipal services fees, surcharges on fees, property rates and other municipal taxes, levies and duties is a charge upon the property in connection which the amount is owing and enjoys preference over any mortgage bond registered against the property"means that the new owner can be saddled with the historical debt which a previous owner incurred.

The Court specifically focused on the words "charged upon property" as contained in Section 118 (3).

The Court had regard to inter alia the historical and common law factors and held that when a legislator creates a transmissible charge (debt) upon property, namely a debt which can be transferred from one person to another, registration in the Deeds office is required.

Notably Section 118 (3) does not require the charge to be registered or noted on the register of deeds. The Court held that this was a telling indication that the charge (the debt) only takes effect on current owners and not new owners unaware of the new historical debt. The debt effectively does not pass to the new owner, as it does not survive transfer.

The Court further held that the bill of rights prohibits arbitrary deprivation of property and Section 118 (3) must be interpreted to the effect that the historical debt of a previous owner does not pass to a new owner. Hence Section 118 (3) must be interpreted that the debt does not pass the new owner. Interestingly the Court did not declare Section 118 (3) invalid, due to the fact that the Section 118 (3) can be interpreted without constitutional objection.

The ruling of the Constitutional Court to the effect that new owners cannot be held liable for the historical debt of a previous owner, is indeed a victory for property owners and financial institutions alike.

This will certainly provide our financial institutions with peace of mind, when borrowing funds for the purchase of property, knowing that neither the owner nor the financial institutions can be deprived of their security, for the sins of the previous owner.

Municipalities will immediately have to desist with the practices of imposing and trying to collect historical debt, which they omitted to collect from a previous owner, from the new owner.

The aforesaid practices of the Municipalities is now finally declared invalid and new owners can justifiably refuse to pay such new historical debt of a previous owner.