What is a rates clearance certificate?

Every conveyancer's file has a stage at which the transfer is waiting on the municipality, and every buyer and seller learns, at that stage, that the municipality works to its own clock.

The document being waited for is the rates clearance certificate. Understanding what it is explains both why the delay happens and why buyers need not fear the seller's old municipal debt.

Why it exists

Section 118(1) of the Local Government: Municipal Systems Act 32 of 2000 provides that the Registrar of Deeds may not register the transfer of property except on production of a prescribed certificate issued by the municipality, certifying that all amounts that became due in connection with that property for municipal service fees, surcharges, 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.

It is a collection mechanism. Municipalities are owed enormous sums, and the moment a property changes hands is the one moment at which the debt can be enforced with certainty, because the transfer cannot happen without them.

The two years

The certificate covers the two years preceding the date of application. That is the debt the seller must clear before the municipality will issue it.

Two consequences follow.

Older debt does not block the transfer. Debt from three or four years ago is not within the certificate. The municipality cannot refuse clearance on account of it.

But the municipality does not forgive it. Historical debt remains owed by the person who incurred it. What section 118 governs is whether the transfer can register, not whether the debt exists.

Which raises the question buyers actually ask.

Can the buyer be pursued for the seller's old debt?

No, and this is settled at the highest level.

Section 118(3) gives the municipality a charge over the property for amounts due, and for years municipalities argued that this charge survived transfer, so that a new owner could be held to ransom for a previous owner's historical debt, typically by refusing to open a municipal account or to connect services.

In Jordaan and Others v City of Tshwane Metropolitan Municipality the Constitutional Court held that section 118(3), properly interpreted, does not allow a municipality to pursue a new owner for pre-transfer municipal debt. The charge is extinguished on transfer. The municipality's remaining recourse is against the previous owner personally.

So a buyer who takes transfer is not liable for the seller's historical municipal debt, and a municipality that refuses to open an account or connect services on that basis is acting unlawfully. Put the position in writing, cite the judgment, and escalate.

The process, step by step

The conveyancer applies for clearance figures. Once the sale is unconditional, the transferring attorney asks the municipality for a statement of what must be paid to obtain the certificate.

The municipality issues figures. This is where the time goes. Turnaround varies from days to many weeks, depending on the municipality, and there is little the parties can do to speed it up beyond applying early.

The figures include an advance. The amount to be paid is not only the arrears. The municipality requires payment in advance of estimated rates and charges for a period ahead, commonly several months, so that the account is in credit through the anticipated transfer date. This is the figure that surprises sellers.

The seller pays. From their own funds, or the conveyancer pays from the deposit or the proceeds by arrangement.

The certificate issues, and the transfer can be lodged.

The certificate has a limited validity. If the transfer is delayed beyond it, the figures have to be refreshed and, in some cases, the whole exercise repeated.

Our guide on how long a property transfer takes sets out where this sits in the overall timeline, and our guide on transfer costs and the transfer costs calculator show the other costs falling due at the same time.

The refund

Because the seller paid in advance for a period extending past the transfer date, and because the buyer becomes liable for rates from transfer, the seller is usually entitled to a refund of the surplus after registration.

It is not automatic. The seller, or the conveyancer on the seller's behalf, has to apply to the municipality for it, with proof of the transfer and the closing reading. Municipal refunds are slow, and a claim that is not made is not paid.

Sellers routinely forget this money exists. Diarise it for a month after registration.

What goes wrong

Applying late. Clearance figures are requested only once the sale is unconditional, and they take time. A conveyancer who applies the day the bond is granted has done the right thing; a seller who has not paid the account for a year has made that step slow.

A disputed account. Where the seller has an unresolved dispute with the municipality, over an estimated reading or a billing error, the municipality will usually not issue clearance until the full figure is paid. The practical answer is often to pay under protest, take transfer, and pursue the dispute afterwards.

Two accounts for one property. Rates and services are sometimes billed separately, and both must be cleared.

Sectional title levies. In a sectional title scheme a levy clearance certificate from the body corporate is also required, and it runs on its own process. Our guide on disputing body corporate levies explains how a levy dispute can hold up a transfer in the same way.

The certificate lapsing. A transfer held up by a bond or a deceased estate can outlast the certificate's validity, and the process restarts.

The occupier's usage. Where a buyer takes early occupation, the consumption between occupation and transfer is billed to the seller's account. Our guide on occupational rent explains why the meter reading on the occupation date matters.

What the certificate does not do

Because the document is treated as a clean bill of health, it is worth being clear about what it does not certify.

It does not release the seller. Historical debt older than the two-year window is not cleared by the certificate and is not extinguished by Jordaan. What that judgment settled is that the new owner cannot be pursued. The municipality's claim against the previous owner personally survives transfer, and municipalities do pursue it, sometimes years later, sometimes by attaching it to the seller's next property account.

It does not certify that the account was correct. A seller who paid an estimated or disputed figure to obtain clearance has paid it, and the argument about whether it was owed continues afterwards, if at all. Keep the readings and the statements.

It does not cover the body corporate. Levies are a separate clearance from a separate creditor.

It does not cover consumption after the reading. The final reading on the certificate is the cut-off. Usage between that reading and the buyer opening an account is the subject of the seller's closing bill and the buyer's opening one, and disputes about the gap are common enough that photographing the meter on the transfer date is worth the minute it takes.

For buyers

Ask the conveyancer what stage the clearance is at, specifically, rather than accepting that the matter is "with the municipality".

Open your own municipal account promptly after transfer, with the transfer documents and a meter reading. Do this even if the municipality is slow, and keep the proof.

If the municipality raises historical debt against you, do not pay it. Cite Jordaan, put the position in writing, and escalate. The debt is the previous owner's.

Check the sectional title position separately if the property is in a scheme.

For sellers

Get your account up to date before you list. It is the single biggest thing you control.

Expect the advance. The figure to be paid will exceed the arrears.

Keep the meter readings at the date of occupation and the date of transfer.

Claim the refund.

Worked example

This example is illustrative. A seller's municipal account is R18 400 in arrears, spread over the last fourteen months. The sale becomes unconditional on 4 March and the conveyancer applies for clearance figures the same day.

The municipality takes five weeks to issue figures. They come to R31 200: the R18 400 arrears, plus an advance covering estimated rates and services for the months through the anticipated transfer, plus a small administration fee.

The seller pays. The certificate issues in mid-April. The transfer registers in late May.

Two things follow. The buyer opens her own account from the date of registration, and when the municipality's system flags the seller's older debt against the property, she writes citing Jordaan and the debt is removed from her account within a fortnight.

The seller, meanwhile, was in credit at the date of transfer because the advance ran past it. He applies for the refund with the transfer confirmation and the closing reading, and receives it three months later.

Had he applied for figures only once he found the arrears letter in June, the five-week wait would have started then, the buyer's bond approval would have lapsed while it ran, and the whole transaction would have needed a written extension that nobody had thought to sign.