Rates Clearance Certificates: Must a New Owner Pay Old Municipal Debt?

A property transfer in South Africa cannot be registered until the municipality has been paid. Before the Deeds Office will register a transfer, the conveyancer must lodge a rates clearance certificate issued by the local municipality — and behind that everyday piece of paper lies one of the most contested provisions in our municipal law: section 118 of the Local Government: Municipal Systems Act 32 of 2000. For years, buyers feared that purchasing a property meant inheriting the previous owner's unpaid municipal debt. In 2017 the Constitutional Court settled that question decisively, and every buyer and seller should understand what it decided.

What section 118(1) requires

Section 118(1) provides that a registrar of deeds may not register the transfer of property except on production of a prescribed certificate, issued by the municipality in which the property is situated, certifying that all amounts that became 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.

Two features of this provision matter in practice. First, the certificate is an absolute precondition to registration: no clearance, no transfer. Second, it has a built-in time limit — the certificate may only insist on payment of amounts that became due in the two years preceding the application. A municipality cannot lawfully withhold the certificate over older debt.

How the rates clearance process works

1. The conveyancer applies to the municipality for rates clearance figures shortly after the sale agreement is signed.
2. The municipality issues figures covering everything due for the preceding two years, usually together with an advance collection for some months ahead, so that charges accruing before registration are already covered.
3. The seller pays the figures — this remains the seller's responsibility, not the buyer's.
4. The municipality issues the clearance certificate, which the conveyancer lodges in the Deeds Office with the transfer documents.
5. After registration, the seller may claim a refund of any credit that remains on the municipal account, and the new owner opens an account in their own name.

Delays in obtaining figures and certificates are among the most common causes of slow transfers, particularly where an account is in dispute or billing errors first have to be corrected. We encourage sellers to check that their municipal account is accurate and up to date as soon as they decide to sell, rather than discovering a problem mid-transfer.

Section 118(3): the municipality's security

Subsection (3) is a different creature. It provides that amounts due for municipal service fees, surcharges, rates and other municipal taxes, levies and duties are a charge upon the property concerned and enjoy preference over any mortgage bond registered against it. Unlike subsection (1), this charge is not limited to two years.

It was this provision that caused years of anxiety. Some municipalities argued that because the charge was not time-limited, it survived transfer — and on that basis they refused to open municipal accounts for new owners, or suspended services, until historical debt run up by previous owners was paid. New owners received demands for debts that were sometimes decades old and that they had no part in creating.

The Jordaan judgment: historical debt does not survive transfer

The question reached the Constitutional Court in Jordaan and Others v City of Tshwane Metropolitan Municipality and Others [2017] ZACC 31; 2017 (6) SA 287 (CC), decided on 29 August 2017. The court upheld the constitutional validity of section 118(3), but only on the interpretation that the charge it creates does not survive transfer of the property. Upon transfer, a new owner is not liable for municipal debts that arose before transfer.

In other words, the security the municipality enjoys over the property is extinguished when the property changes hands. Municipalities retain every ordinary remedy against the person who actually incurred the debt — they can sue the former owner, attach assets and collect arrears — but they cannot look to the new owner, or to the property in the new owner's hands, to recover the previous owner's arrears.

What this means for sellers

• You must still pay everything due for the two years preceding the clearance application, plus the advance collection, before the certificate will be issued.
• Debt older than two years does not disappear: it remains your personal liability, and the municipality may still pursue you for it after transfer.
• Query and resolve disputed charges early — a contested account can hold your whole transfer hostage.

What this means for buyers

• You cannot lawfully be held liable for municipal debt the previous owner incurred before transfer, and services cannot be leveraged against you to collect it.
• Keep a copy of the clearance certificate and your registration date — they are your proof of where the previous owner's liability ends and yours begins.
• If a municipality nonetheless demands historical debt or refuses to open an account in your name, that conduct is inconsistent with the Constitutional Court's ruling and can be challenged.

We attend to rates clearances in every transfer we register as part of our conveyancing services, and we assist owners in disputes with municipalities over historical debt and incorrect billing. If you have received a demand for a previous owner's arrears, contact us before paying anything.