Unlucky 118

A new clearance certificate policy in Johannesburg is a hurdle for sellers

The number 118 is fast becoming unlucky for sellers of property in SA cities. First, the section 118 ruling by the constitutional court last year made landlords responsible for their tenants' municipal accounts. And section 118 (1a) of the Municipal Systems Act (MSA) stipulates that clearance certificates must be valid for 120 days, instead of the previous six to eight weeks.

Clearance certificates are issued to confirm that the seller is up to date with rates and other municipal charges. A property cannot be transferred without a clearance certificate.

As a result of the MSA clause, the city of Johannesburg has recently introduced policy requiring sellers to provide a deposit equal to six months' worth of municipal charges. This seems to have been put in place to compensate for inefficient billing systems.

For a typical suburban household, six months' worth of charges can be as much as R15 000. Last week, a seller of a R1m house was told to produce R200 000. And though the sum is a deposit, sellers had better not want their money back in a hurry. "It's hard to say when these amounts will be refunded, given the council's appalling track record," says the Democratic Alliance's Johannesburg leader, Mike Moriarty.

Some sellers have had to wait 12 months to be refunded by the city. Delays are particularly bad in Johannesburg, but lawyers say the same inefficiencies are cropping up in Pretoria.

The MSA also says that to get your clearance certificate, your municipal account must be up to date for two years. But the Johannesburg council reserves the right to pursue landlords for any balance that is older than two years.

Some argue that the longer the transfer of accounts takes, the better for the council. "They've got six months' income in advance," says Knowles Husain Lindsay Inc senior associate Fanie du Preez. "So they don't have to collect."

In other words, there is little incentive for the council to expedite matters.

Moriarty suggests the commercial and buy-to-let property sectors will suffer because the sale of property has become more complicated, expensive and time-consuming.

As usual, it's those sellers with the least income that are the worst affected. "It appears the municipality expects the property owner to take out a loan for the amount if they don't have the cash on hand," says Moriarty.

Some analysts predict an upsurge in class actions against the council, but there are mixed views about the efficacy of this approach.

Mandy Woods, a spokesman for the city of Johannesburg's revenue department, concedes its systems are weak and that fraud has had a significant impact. "This is of concern to us. If it is left to get out of control, the city will not be able to collect the money due and at present 75% of the city's budget comes from the payment of municipal services."

But there is a move to bring sanity back to the property-sale process. "The council asked us for assistance and we are now trying to work together to find solutions," says Sophia de Klerk, an attorney with Young Davis who also represents the Johannesburg Attorneys' Association.

Several groups have petitioned the department of provincial & local government to have the 120 days reduced. And, says De Klerk, they have agreed to amend the requirement to 60 days.

"The problem is that sellers just pay the council to expedite matters," she adds. "They don't always take the time to sort out discrepancies." This perpetuates the inefficiencies.

The effect of both the constitutional court's section 118 ruling and the MSA clause could be to discourage property ownership. Especially where, as Moriarty points out, "the landlord is forced to become an underwriter of last resort".

But the upside is that these measures should make landlords more vigilant and property managers more professional.


Article by : Pauline Larsen - http://free.financialmail.co.za