City of Tshwane Metropolitan Municipality v Mathabathe & another

In 2010, the first respondent, Mr Thomas Mathabathe, was the owner of Erf 1080 Kosmosdal Ext 17. The second respondent, Nedbank Ltd, was the mortgagee of the property. Mathabathe appointed Nedbank through a special power of attorney to sell the property by public auction. On 11 December 2010, Mr Lesley Thomas Lawrence made an offer to purchase the property for R1.3 million at a public auction, which was accepted on 13 December 2010. Nedbank instructed attorney Y Viviers to attend to the registration of transfer. Ms Viviers applied to the appellant, the City of Tshwane Metropolitan Municipality, for a clearance certificate under s 118(1) of the Local Government: Municipal Systems Act 32 of 2000. The Municipality issued a certificate showing a total outstanding amount of R162,722.26, which included a "historical debt" of R151,324.22 for charges levied for municipal services prior to the two-year period contemplated in s 118(1)(b). When Ms Viviers failed to persuade the Municipality to exclude the historical debt, the respondents launched an application in the North Gauteng High Court seeking an order compelling the Municipality to issue a certificate limited to amounts due during the two-year period only.

• What is the proper interpretation of s 118(3) of the Local Government: Municipal Systems Act 32 of 2000 read with s 118(1)?
• Whether the Municipality was entitled to withhold issuing a clearance certificate under s 118(1) unless an undertaking was given that the historical debt (amounts exceeding the two-year period) would be paid subsequent to registration of transfer?
• What is the nature and extent of the security created by s 118(3) in favour of a municipality?
• Whether a municipality loses its rights under s 118(3) upon registration of transfer of the property?

The appeal was dismissed with costs.

The ratio decidendi is that s 118(1) and s 118(3) of the Local Government: Municipal Systems Act 32 of 2000 provide municipalities with two distinct remedies: (1) s 118(1) is an embargo provision with a two-year time limit that allows municipalities to block transfer of property until debts incurred during the two years preceding the application for a clearance certificate have been paid; (2) s 118(3) is a separate security provision without a time limit that creates a charge upon the property (amounting to a tacit statutory hypothec) for all amounts due for municipal service fees, surcharges, property rates and other municipal taxes, levies and duties, which enjoys preference over any mortgage bond registered against the property. This security does not cease upon registration of transfer of the property. A municipality cannot require an undertaking to pay historical debts (debts exceeding the two-year period) as a condition for issuing a clearance certificate, as it already has adequate security for such debts through the charge created by s 118(3).

The court made observations about the purpose of s 118, stating that municipalities are obliged to collect moneys that become payable to them for property rates and taxes and for the provision of municipal services (s 96), and they are assisted to fulfil that obligation in two ways: first, they are given security for repayment of the debt as a charge upon the property (s 118(3)); and second, they are given the capacity to block the transfer of ownership until debts have been paid in certain circumstances (s 118(1)). The court also noted that for purposes of s 118(3), it does not matter when the component parts of the secured debt became due - all debts arising from the stipulated causes are added up to become one composite amount secured by a single hypothec which ranks above all mortgage bonds over the property.

This case is significant in South African jurisprudence as it clarifies the interpretation and operation of s 118 of the Local Government: Municipal Systems Act 32 of 2000. It distinguishes between the embargo provision in s 118(1), which limits municipalities to requiring payment of debts arising during the two years preceding the application for a clearance certificate, and the security provision in s 118(3), which creates a charge on the property for all municipal debts without a time limit. The judgment confirms that municipalities have ongoing security for historical debts through the charge created by s 118(3) that survives registration of transfer, and they cannot require additional undertakings beyond this statutory security. The case provides important guidance on the balance between protecting municipal revenue collection and facilitating property transactions.