Court Rules New Home Owners Aren’t Liable For Previous Owners Debt

In a country that is largely divided by poverty with a struggling economy and millions of ordinary South African citizens under pressure to repay their debts by consulting debt review agencies and opting for consolidation loans, there is some good news for new home owners. Cape Town’s Constitutional Court recently ruled that new property owners will no longer be liable for the historical debt of their predecessors.

A similar landmark high court ruling in 2016 was disputed by the Tshwane, Ekurhuleni and eThekwini municipalities, including the cooperative and governance minister. The application was brought to the high court by disgruntled homeowners who rightfully complained when their municipal services were cut due to unpaid bills by the previous homeowners, which municipalities insisted had to be paid by the new landowners before a clearance certificate could be issued.

The municipalities argued that the Local Government: Municipal Systems Act made it lawful for them to extract the municipal debts racked up by the previous landowner from the new owner once they had taken transfer of the property. In a unanimous judgment, the Constitutional Court ruled that this section of the law was, in fact, deemed unconstitutionally invalid and that the municipalities can no longer transfer any water, electricity or rates bills left by the previous owner to the new homeowners. The court further stated that the municipalities had an obligation to nurture a culture of payment and to collect money in arrears, as well as disconnect water and electricity supplies, in the correct circumstance, and ruled that the municipalities and the minister had to foot the costs.

Judge Edwin Cameron said that the municipalities had a ‘full-plated panoply of mechanisms enabling efficient debt recovery in the cause of collecting publicly vital revenue’, and that they had the legal power to stop any imminent transfers in the case of any unpaid debts. This judgment is great news for all the people who were left financially crippled by debt that wasn’t even their own and having to seek debt advice. It also puts the onus back on to the municipalities whose job it should be to recover any historical municipal debts.

The Managing Director of South Africa’s Banking Association welcomed the new ruling that would not only save new landowners from incurring unnecessary debts from their predecessors, (thus avoiding the need for future debt consolidation) but would also boost prospective buyers’ confidence.

The number of South Africans with high credit debts and loans has increased substantially over the past years with many of its citizens having to resort to debt counselling agencies to free themselves of unwanted debt. In the country’s troubled economic climate, house owners are under constant threat of being repossessed, no longer being able to afford their municipal bills, or being hounded by a reckless lending industry intent on making a quick buck out of their misery. It’s imperative that households fraught with debt, consolidate their debts, and look at smart saving tips if they want to retire in a comfortable financial position.