Senior writer
Overall, municipal accounts in arrears may be subject to interest when selling a property, and usually, the defaulter has 30 days to pay before that interest is charged. However, there are instances when a reversal of interest can be requested, such as when the account is in dispute, the address is incorrect, or the account was sent to the wrong address.
But first, let’s examine the law. The Local Government: Municipal Property Rates Act 6 of 2004 is the point of reference, which says a municipality has to provide the account holder with a written account of rates and taxes and that the account holder is liable for payment of rates and taxes, regardless of whether having received the written account or not. The assumption (which is reasonable, say legal experts) is that account holders know they are liable for rates and taxes on a regular basis, so non-receipt of a municipal account is not an excuse to avoid non-payment.
The account contains various usage aspects and obligations applicable to the account holder. These include electricity and water consumption based on meter readings or estimated consumption; refuse removal and disposal; sewerage service and sewer availability fees; rates; interest; reconnection fees and default administration charges; and miscellaneous and sundry fees/collection charges.
It is important to note that only payments received on or before the due date in the respective municipality’s financial system are considered to have been received. This may mean that the account may look as though the customer is in arrears, but the payment will reflect on the next month’s statement. However, if the customer fails to pay the full amount due on or before the due date, the unpaid amount is deemed to be in arrears. The municipality may then issue a pre-termination notice (indicating that the electricity may be disconnected or water throttled) and/or a Final Demand, which may be delivered by hand or along with the invoice, usually electronically.
When payment is received it is allocated by settling the oldest outstanding debt first, followed by the administrative cost, sundries, interest and only then, current outstanding debt.
When an account holder defaults, generally the municipality affected will entertain a payment plan. This requires the signing of an Acknowledgement of Debt, a legal document between the customer and the City, where the account holder acknowledges the debt and agrees to pay it off.
Interest is charged on overdue accounts from the due date at the existing bank prime interest rate, but conversely, the municipality will not pay interest on credit amounts. The interest charged applies to arrear accounts aged 180 days or older, closed accounts, accounts related to insolvency estates, and debtors under administration, but only the administration portion. Interest on arrear debt is raised for each month is which the payment remains outstanding, and even part of the month is considered a full month.
Each municipality has some variation of this process, and even, from time to time, offer a waiver on the interest being charged, or has charged, if a defaulter pays their outstanding debt in full.
Where things get a bit murky is when interest has been charged on an overdue account, in the case of being able to issue a clearance certificate for a property transfer. This was raised in April, in a court case between Moatshi (who had purchased a property from an insolvent estate) v City of Tshwane Metropolitan Municipality.
The courts conclusion was no, the city is prohibited from charging interest in that particular case. The reference is section 118(1)(b) certificate of the Local Government: Municipal Systems Act 32 of 2000, which stipulates (as per STBB legal firm):
“118 Restraint of transfer of property
(1) A registrar of deeds may not register the transfer of property except on production to that registrar of deeds 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.”
The question in Moatshi v City of Tshwane was whether this Act allows for interest to be added to charges as outlined in section 118(a), and if so, who is responsible for the payment of the interest. “Moatshi argued that section 118(1) of the Act only provides for the inclusion of “municipal service fees, surcharges on fees, property rates and other municipal taxes, levies and duties” levied in the relevant period in determining the amount required for the issuance of a clearance certificate, and that it does not provide for a municipality to charge and include interest thereon.
“To put it differently, the Act only provides for a municipality to include, in the section 118 certificate calculation, all monthly municipal charges which fell due in the two years preceding the application for the certificate, exclusive of interest which might otherwise become due and payable as per the municipality’s credit control and debt collection policy.”
Among other legal findings, and references to other sections of the Act, the conclusion was that municipalities are not prohibited to charge interest on arrear accounts in general. Accounts however, can only be said to have fallen into arrears when firstly consumption has occurred by the user (who stands in a contractual relationship with the municipality); secondly, a statement has been rendered by a municipality demanding payment; and thirdly, the account remains unpaid by the due date so set in the statement. Once these three occurrences have taken place, coupled with the enabling legislation, interest may be levied.
“In Moatshi’s case neither of these three were applicable and so he found favour with the court,” said STBB.
