RATES CLEARANCES EXPLAINED
What is a Rates Clearance Certificate? (RCC)
A Rates Clearance is a certificate provided by a suitably qualified conveyancer, on application, to transfer the ownership of a property. This a legal requirement. The RCC certifies that there is no current outstanding debt due, by the seller, on the property. The Registrar of Deeds may then pass transfer of ownership on the property and registration in the purchaser’s name may proceed.
What is a Rates Clearance Certificate? (RCC)
What is the law?
The Deeds Registry Act prohibits the Registrar from passing transfer of a property without such a certificate.
Section 118 of the Local Government: Municipal Systems Act, 2000 (Act No. 32 of 2000) states:
“118(1)A registrar of deeds may not register the transfer of property except on production of a prescribed certificate –
(a) issued by the municipality or municipalities in which that property is situated; and
(b) which certifies 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.
1(A) A prescribed certificate issued by a municipality in terms of subsection (1) is valid for a period of 60 days from the date it has been issued.
Is a Rates Clearance required on both freehold and Sectional Title properties?
To fully understand the differences between sectional title and traditional freehold property ownership, it is important to define them.
Freehold, or full title, describes the transfer of full ownership rights of a property you own, including both the buildings and the land they are built on. These kinds of properties include free-standing houses, cluster houses, property used for business, farms and smallholdings.
Sectional title on the other hand, describes separate ownership of units or sections within a complex or development. When you buy into a sectional title complex, you purchase a section, or sections and an undivided share of the common property. These are collectively known as units. Sectional title dwellings comprise mini subtype houses, semi-detached houses, townhouses, flats or apartments, and duet houses. Sectional title developments are governed by a Body Corporate, which is the collective name given to all the owners of units within any particular complex. The Body Corporate is responsible for managing the scheme and taking care of its finances.
For the purposes of rates clearance Sectional Title and Freehold properties are treated the same. This means that a Rates Clearance Certificate must be obtained before Sectional Title Property (a section) can be lodged and registered in the Deeds Office. To obtain a clearance certificate on the section all the Body Corporates’ debt must be up to date. All the owners within the scheme are liable for Body Corporate debt.
How does the rates clearance process work?
The appointed conveyancer will apply to the municipality to issue “Rates Clearance figures”. This is a breakdown of the outstanding debt.
The conveyancer will request this amount from the seller. Once all outstanding and assessment amounts have been paid by the seller, a rates clearance certificate will be issued to effect transfer.
What debt is included in the rates clearance?
A municipality will charge for any arrears on the property for the last two years. This will include rates, other municipal taxes, electricity, water, sewerage, refuse and other sundries. The amount will also include debt due for a period in advance to provide for the time whilst the transfer is taking place. This is a practical measure. The law states that a clearance must remain valid for 60 days from date of issue.
Case Law
According to a recent High Court judgement, City of Tshwane Metropolitan Municipality v PJ
Mitchell [2015] ZASCA 1 (29 January 2016), any debt more than 2 years remains a debt on the property and the purchaser will become responsible for this debt on date of transfer.
It is unlikely a municipality will allow provision of services to the purchaser unless this is paid. Purchasers are advised to ensure that a provision is in included in the sale agreement to protect themselves.
When may sellers be refunded?
The conveyancer will pro-rata any rates required on the clearance between seller and purchaser. No refund is due unless the seller made a payment after the clearance was paid.
In respect of advance services, once the services are disconnected and the account finalised the seller may apply for a refund of any amounts paid more than the final amount.
Property rates
The Local Government Municipal Property Rates Act No 6 of 2004 (MPRA) regulates property rates. Municipal rates are determined using the value of the property recorded in the valuation roll. The general valuation roll is prepared every 4 years for a metropolitan municipality and every 5 years for a local municipality. The assessed value multiplied by the tariff determines the rates payable.
The general valuation roll includes the market value of the actual use of all properties within the municipality on the date of valuation. In terms of Section 31, the date of valuation may not be more than 12 months before the start of the financial year the general valuation roll is implemented in.
The MPRA provides for differential tariffs, that is different tariffs for different categories of properties. For example, a residential property is rated differently to a commercial property.
The municipality may also extend rates relief through exceptions, reductions and rebates. The criteria and application procedures for applying for such relief is contained within the municipal rates policy. The rates policy and the tariffs are reviewed and advertised annually with the municipal budget, ahead of 31st May. The new financial year starts on 1st July of each year.
What is a Supplementary Valuation?
According to the MPRA the following (a-h) are the triggers for the preparation of a supplementary valuation:
- a) incorrectly omitted from the valuation roll;
b) included in a municipality after the last general valuation;
c) subdivided or consolidated after the last general valuation;
d) of which the market value has substantially increased or decreased for any reason after the last general valuation;
e) substantially incorrectly valued during the last general valuation;
f) that must be revalued for any other exceptional reason;
g) of which the category has changed; or
h) the value of which was incorrectly recorded in the valuation roll as a result of a clerical or typing error
In the case of a property transfer – the sales price and sales date of a property serve as a guide to value. The value assigned to the property will be the market value of the property as at the date of valuation.
The closer the sale date to the date of valuation, the closer the assessed value should be to the sales price. As the validity of the roll proceeds so the variance may increase given any changes within the property market.
A property sale should not raise a supplementary valuation unless the property was incorrectly valued in the previous general valuation, or the value/category has changed since the previous general valuation. A change of ownership does not trigger a supplementary valuation.
By Candice Cooper, for MetGovis.
For any further queries please do not hesitate to contact us on Tel 033 3432868 or info@metgovis.co.za
This article was originally posted on Metgovis
