City of Tshwane Metropolitan Municipality v Peregrine Joseph Mitchell (38/2015) (2015) ZASCA 1

The event of buying of a home and its penumbra is such an esteemed and a pleasant thing, all emotional corners of your being are coerced into a transaction that should supposedly propel you into another level of the Maslow’s stairway.

Well, if anything is to go by it, consider the statutory hypothec the Municipality has over your new property for historical debts. To throw the spanner in works, this debt predates you. Now that I have your attention, in this article, I will endeavor to explain the current legal position herein.

In the court a quo, the court heard how Mr. Joseph Mitchell (hereafter Mitchell) bought a fixed property at a sale in execution. I pause to mention that it is important at the outset to note the different methods of buying property i.e. by Offer to Purchase, sale in execution, auction. So, the conditions of the sale in execution included, inter alia, “the purchaser shall be responsible for payment of all costs and charges necessary to effect transfer including conveyancing costs etc. or other like charges to procure a rate clearance certificate, transfer duty, VAT attracted by the sale and any Deeds registration office levies”.

Now, I implore you to consider the aforesaid within the context of what the law provides via the provisions of Section 118 of the Municipal Systems Act, 32 of 2000 (the Act):

  1. (1) A registrar of deeds or other registration officer of immovable property may not register the transfer of property except on production to that registration officer of a prescribed certificate— (a) issued by the municipality in which that property is situated; and (b) which certifies that all amounts due in connection with that property for municipal service fees, surcharges on fees, property rates and other municipal taxes, levies and duties during the two years preceding the date of application for the certificate have been fully paid.

(2) In the case of the transfer of immovable property by a trustee of an insolvent estate, the provisions of this section are subject to section 89 of the Insolvency Act, 1936 (Act No. 24 of 1936).

(3) An amount due for municipal service fees, surcharges on fees, property rates and other municipal taxes, levies and duties is a charge upon the property in connection with which the amount is owing and enjoys preference over any mortgage bond registered against the property.

So, Mitchell enquired from the Municipality in respect of Section 118(1) supra for the clearance certificate to which an outstanding debt of R232 828.25 was owing. He asked the Municipality to revise the debt to show debt of two years prior and paid R126 608.50 towards same. Question is, whose debt does the differential being R106 2019.75 belong to? Things got shifty when he sold the property to one Ms. Prinsloo. She requested the Municipality, prior to registration, to have an account in her name opened so she can receive municipal services and the Municipality refused, grounds being the enormity of the outstanding debt (106K supra). At this point, she threatened to cancel the agreement with Mitchell. I refer you at this point to Section 118(3) supra.

Mitchell felt obligated to see the transfer through and approached the High Court in a bid to “force” the Municipality to accede to Prinsloo. The court aquo agreed with his averments. The celebrations were short lived as city residents’ alike cocooned emotions until an appeal judgment was handed down. In the Appeal, the judgment of the court a quo was reversed, without detailing the shortcomings of the applications and the arguments, here is for me what the matter turned on:

  1. Whether or not the position in common law was reversed by this statutory hypothec of Section 118, Voet noted an exception[1] which read: “Another exception when mortgaged properties have been sold and delivered on the petition of creditors by order of a judge with employment of the formalities of a spear and creditors holding a hypothec having kept quiet. Nevertheless, by our customs in such a case the price takes the place of the thing and a hypothecary creditor is permitted to contest with the rest of the creditors the privilege of preference over the price of the mortgaged property.”
  2. Whether or not the sale in execution severs the hypothec on a property after transfer as it is not a normal fixed property sale but one declared by a judge.

 

  1. Rule 46(5)(a) of the Uniform Rules of Court states: “No immovable property which is subject to any claim preferent to that of the execution creditor shall be sold in execution unless- (a) the execution creditor has caused notice, in writing, of the intended sale to be served by registered post upon the preferent creditor, if his address is known and, if the property is rateable, upon the local authority concerned calling upon them to stipulate within ten days of a date to be stated a reasonable reserve price or to agree in writing to a sale without reserve; and has provided proof to the sheriff that the preferent creditor has so stipulated or agreed, or…” If this Notice was served, why would the Municipality not have provided their outstanding debt so that they can recover same inclusive in the sale price?

The SCA argued and in my view, on technicalities of the initial application chief amongst which was Mitchell should not have launched the application because the Municipality showed an intention to proceed against Ms. Prinsloo for the historical debt and had not done so at the time, thereby deeming his application premature. That before the Municipality could pursue the historical debt, it has to comply with its own bylaw and do the following: It has to show that 1. There is no occupier on the property concerned and 2. The debtor who had a contract with the Municipality had absconded and could not be traced. Further held the common law position was amended by Section 118.

Interestingly, a dissenting judgment noted the legal issue differently and held that the common law was upheld by Section 118, if not, it would have read differently and that Voet’s exception would apply in casu and would sever the hypothec as a result. The latter he held would not apply where there was an agreement to purchase immovable property and that the Mathabathe[2] case which formed a part of the argument should not have become about since it involved an auction which had nothing to do with matter in casu.

In conclusion, the hypothec and or debt over immovable property may be enforced by the Municipalities. Legally vexed as it is, perhaps under a different legal argument, the matter on Section 118 may be challenged successfully, till then, you be the judge.

By

Phalen Selibi
phalen@dyason.co.za