On the 29th March 2017, the Supreme Court of Appeal (“SCA”) delivered a benchmark judgement in the case of Nelson Mandela Bay Municipality v Amber Mountain Investments 3 (Pty) Ltd (576/2016) [2017] ZASCA 36 (29 March 2017). This case dealt with the issue of whether, following the sale of immovable property, the property owner is liable to pay the total rates on the property determined for the entire financial year or only the rates calculated until the property is transferred.

In this case, the Respondent, Amber Mountain Investments 3 (Pty) Ltd, had sold its immovable property described as Erf 8457 Walmer, Port Elizabeth (“the property”) to Joburg Skyscraper (Pty) Ltd. Before transfer of the property, the Respondent required a rates clearance certificate in terms of section 11 of the Local Government: Municipal Systems Act 32 of 2000, from the Appellant, the Nelson Mandela Bay Municipality (“the municipality”). Since the municipality’s financial year commences on 1 July in a year and ends on 30 June the following year, the municipality required from the Respondent, as a condition for furnishing the certificate, payment of rates until the end of its financial year, which in this instance was 30 June 2010.

Having been presented with the account of R2 281 014.68 by the municipality, the Respondent, under protest, paid the amount to obtain the certificate. The actual indebtedness of the Respondent to the municipality was R1 214 482.68, and it had therefore overpaid the municipality R1 066 532.00 - an amount it then claimed back.

In the court a quo (the Eastern Cape Division of the High Court), the municipality contended that considering the relevant provisions of the Local Government: Municipal Rates Act 6 of 2004, the respondent, to obtain a rates clearance certificate, was obliged to pay the full property rates on the property for the financial year commencing on 1 July 2009 until 30 June 2010. The court, however, found that the respondent was only obliged to pay rates on the property until the date of transfer of the property. Being dissatisfied with court a quo’s findings, the municipality appealed to the Supreme Court of Appeal.

In finding against the municipality, the SCA held that having regard to the definition of ‘financial year’ and the relevant provisions of the Rates Act, the words ‘payable as from’ must be interpreted to mean that the rate is payable within the period of the financial year and not until the end of the rate year, on 1 July, as was contended by the municipality. Furthermore, the SCA held that to protect the rights of property owners in selling their property, the said phrase must be interpreted narrowly to mean that the word ‘payable’ only fixes the rate for the financial year, and does not mean that the rate is also payable at the same time. Lastly, the court held that the municipality’s rates policy, which prior to the issuing of a rates clearance certificate insisted on payment of all rates, fees and charges in respect of the property for the entire current financial year, even where this period extended beyond the date of the certificate, contradicted the express terms of the statute.

This case signifies a great victory for property owners in that they can never be required by local municipalities to pay a full year’s rates in advance when they sell their properties. In addition, for the purposes of obtaining a rates clearance certificate, the property owner's liability for municipal debts is limited to the two years preceding the date of application for the certificate, and it does not apply to future municipal debts.