New Property owners now liable for past debt

For Sale Sign
A new ruling by the Supreme Court of Appeal may mean that new property owners are subject to historical debt linked to the property.
For Sale Sign
A new ruling by the Supreme Court of Appeal may mean that new property owners are subject to historical debt linked to the property.

Property owners may now owe debt incurred by previous owners of a property dating back 30 years. This is following a judgement by the Supreme Court of Appeal last month, which ruled that property owners may now be liable for historical debt.

In the past, historical debt liability linked to property only went back 2 years, and was with regard to immediate municipal costs. This ruling seeks to expand the dating to 30 years, in order to account for past owners who did not pay municipal fees.

Part of the ruling must be linked to the major concern of municipal financial shortfalls due to free riders and maladministration. The latter will add to the problems with this new ruling as municipalities are notorious for incompetence and corruption. As a result of this, past debt is not concrete and the evaluations by municipal bureaucrats may not, necessarily, be correct. Simply put, people don’t know, and it is very hard to investigate, how much debt is linked to a property.

The ruling may also extend to tenants and other occupiers of a property, not merely the owner, as many municipalities contain by-laws enabling them to hold tenants liable for costs.

Chanetelle Gladwin, an attorney protesting the ruling, explains it here:

“The implications for property owners are huge. This means that a municipality can take legal action against the present owner of a property for any other amounts owing by any prior owner of that property. This action can range from suing for the old owner’s debts and attaching and selling the property itself.”

Municipal rates are infamously inaccurate and experts like Gladwin are worried that incorrect billing, among other erroneous records, will result in owners being unable to prove that they are not liable for certain debts.

“Basically, no property owner is safe, as no matter how much homework they do before purchasing a property, they can never be 100% sure that someone else’s debt will not appear out of the woodwork to haunt you.”

Gladwin will be taking the matter to the Constitutional Court, where it will hopefully be overturned. Until then, the ruling will pose major uncertainty in the economy. This will, no doubt, destabilise the economy, especially the real estate market. Property will become a much more volatile commodity as access to past debt information is tenuous – especially that spanning 30 years.

This can be ill afforded in an economy approaching recession. Private consumption may be rising, but this is at the expense of sound personal savings, which are taking hits as South Africans are more reluctant to invest in an economy that poses more and more restrictions and risks on owners and investors.

The best the individual can do is investigate the past debt of a property, an action that will be very hard for most, as past owners spanning 30 years will be hard to track due to deaths, migration and disappearance.

Holding individuals accountable for the crimes of others is, without doubt, unethical. Municipalities will need to find another way of holding rate payers accountable, such as a genuinely efficient bureaucracy.

For the sake of our economy, let us hope that the likes of Gladwin do well at the Constitutional Court and overturn the ruling.

The entire story can be accessed here.