28 August 2010 by

Municipal clearance certificates - limit on amounts payable

In the matter of Real People Housing, the applicant, Real People housing (RPH) owned several immovable properties falling within the jurisdiction of the City of Cape Town, the respondent.

RPH had sold some of these properties and in order to effect transfer to the purchasers, required a certificate as contemplated in section 118(1) of the Local Government Municipal Systems Act, 32 of 2000 (the Act), issued by the City of Cape Town. The required certificate is commonly known as a "clearance certificate".

Section 118(1) provides that a registrar of deeds may register the transfer of a property, only if he or she receives a clearance certificate issued by the municipality in which that property is situated. The certificate confirms that all taxes and fees due in connection with the property "during the two years preceding the date of application for the certificate have been fully paid".

RPH requested clearance figures as well as a detailed breakdown of such charges in respect of the properties it wished to transfer. The City of Cape Town provided RPH with schedules for each of its properties, reflecting debts that became due during the two-year period preceding the applications and also included in these schedules, debts that became due more than two years prior to the application date.

The City of Cape Town contended that in terms of its by-laws regulating debt collection, payment would first be allocated to the oldest debt. It therefore argued that "in order to pay the last two years' debt, all previous debts have to be settled" and refused to issue the clearance certificates required by RPH to transfer the properties until all the debts, even those older than two years, were paid in full.

RPH approached the High Court for an order declaring that the City of Cape Town was obliged to issue a clearance certificate upon payment of amounts that had become due in respect of municipal service fees during the two years preceding the application.

The Court considered the background to and intention of the Act, and found that the wording of the Act is clear and limits the indebtedness of a property owner to a two-year period preceding the date of application. Payment in respect of amounts that fell due prior to the two-year period is not a condition precedent for the issuing of a clearance certificate.

Payment by a property owner of municipal service fees that became due in the two years preceding the application and the issue of a clearance certificate by the municipality, does not absolve the owner of liability for amounts that fell due prior to the two-year period. The fact that a clearance certificate was issued does not deprive the municipality of the right to take legal action against the property owner for recovery of these amounts.

The Court therefore found that the City of Cape Town was obliged, on request by RPH, to provide such detailed information to enable RPH to establish which amounts became due during the two-year period preceding the application and to issue the required clearance certificate to RPH on payment of the amount due.

This decision highlights the necessity for sellers of fixed properties to scrutinise clearance figures issued by municipalities, to ensure that payment of only fees and charges that became due in the two years prior to the application are required for issuing of the required clearance certificates.

Muriel Serfontein, Senior Associate, Real Estate

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