Thanks to a recent landmark ruling by the Supreme Court of Appeal, Port Elizabeth property sellers will no longer have to pay a full year’s rates in advance in order to get a rates clearance certificate.

That’s according to Greg Parker, one of the directors of Greyvensteins Attorneys, a member of the national Phatshoane Henney Group of Associated Firms, which successfully appealed on behalf of a client contesting the Nelson Mandela Bay Municipality’s (NMBM) right to claim a full financial year’s worth of rates before issuing a rates clearance certificate.

Speaking after the ruling, Parker explained that the Rates Act empowers municipalities throughout South Africa to levy rates on properties.  However, he pointed out, how and when the rates were collected differed from one municipality to another, with the NMBM traditionally insisting on rates payments being made in advance and as an annual, single payment when properties were transferred from one owner to the next.

In brief, the precedent-setting case centred on the sale of a property in Port Elizabeth.  Parker said that, prior to the transfer date of 25 February 2010, the seller had requested a rates clearance certificate in terms of the Municipal Systems Act.

The NMBM insisted he pay rates until the end of its financial year (30 June 2010), rather than the date of transfer, before it would furnish the certificate, without which the sale of an immovable property may not legally take place.

“The seller paid, albeit under protest,” he said, adding: “Then, believing he had overpaid the municipality, he instituted legal action against it, claiming repayment based on unjust enrichment.”

This was an aspect of the law never tested until now, he said.

When the case came to court, Parker said the court agreed with the seller, finding that he was only obliged to pay rates on the property until the date of transfer ie 25 February 2010, after which he would no longer be the owner and could then not justifiably be expected to pay any additional rates.

“The court also ruled that the NMBM was not entitled to withhold the property rates clearance certificate until it had received payment of the property rates for its entire financial year since rates became due from, not on the start of the financial year,” he added.

Further to this, Parker said that one of the key aspects of the judgement was the wording in the Rates Act, which says that a rate becomes payable ‘as from’ the start of a municipality’s financial year (which runs from 1 July to 30 June), rather than ‘on’.  The court, he said, saw the phrase ‘as from’ denoting the commencement of a period, as opposed to a specific date implied by the use of the word ‘on’.

Before this ruling, he continued, Port Elizabeth sellers were held responsible for the payment of rates until 30 June every year as a result of the NMBM’s interpretation of ‘due’, despite having transferred their properties to new purchasers.  “It’s long been standard practice contractually for the parties to agree that the purchaser would pay the rates (due by the seller) in advance.  This was to ensure payment of the rates due in future and after registration of transfer,” he explained.

“So, if a property was sold in July, and if the rates on it were R1 000 a month, the seller would have been responsible for another R11 000 of rates payments till the end of the following June in order to get a rates clearance certificate.  That’s a lot of money to find, and if they weren’t able to come up with the funds, the sale may well have collapsed,” he said.

“The ruling is therefore a win-win situation now for everyone: the purchaser no longer has to pay their pro rata share of the rates in full and in advance but rather monthly, the seller is no longer responsible for full rates payment in advance, and the estate agent doesn’t have to fear the sale collapsing as a result of the seller not being able to come up with the money.”

Source: Port Elizabeth property sellers no longer have to pay full year’s rates in advance