Hypothec over property

In City of Tshwane Metropolitan Municipality v Mitchell [2016] 2 All SA 1 (SCA), the Supreme Court of Appeal considered the correct interpretation to be given to section 118(3) of the Local Government: Municipal Systems Act 32 of 2000. The case concerned the nature of the security created by statute for municipal services provided.

Mitchell had purchased a property in Wonderboom, Pretoria, at a sale in execution. He applied to the City for a clearance certificate to permit registration of transfer. The City issued a statement, indicating that an amount of R 232,828.25 was outstanding for rates, levies and municipal services. After disputing liability for the full amount, Mitchell paid a little more than half of the total, which was accepted. An amount of R 106,219.75 remained.

Subsequently, Mitchell sold the property to Prinsloo. Before taking transfer, Prinsloo applied for the provision of municipal services, but was informed by the City that she was liable for payment of the outstanding amount of R 106,219.75. Prinsloo instructed her attorneys not to proceed with transfer until the issue of the historical debt had been resolved.

The High Court found, inter alia, that Prinsloo was not liable because the security created under section 118(3) had been extinguished by the sale in execution of the property and its subsequent transfer to Mitchell. The finding was taken on appeal.

The SCA considered the common law and held that the transfer of property from one owner to another does notextinguish the security created under section 118(3). No distinction could be drawn between property sold either at a sale in execution or in a private sale when considering the nature of the security. The SCA held that the statutory hypothec created under section 118(3) survived the sale in execution and subsequent transfer.

Furthermore, the SCA held that nothing would prevent the City from perfecting its security. In other words, it would be entitled to obtain a court order, sell the property in execution and use the proceeds to settle the historical debt.

The appeal was upheld.

Subscribe To Our Newsletter

Subscribe To Our Newsletter

Join our mailing list to receive the latest news and updates from our team.

You have Successfully Subscribed!