Section 118 is a very famous section in Municipal Systems Act 2000 that prevents transfer of a property unless municipal services, fees, property taxes and rates or any other municipal taxes are not paid in full. Section 118 is called: Restrained of Transfer of Property. Page 51 of the Act Section 118.
1) A registrar of deeds or other registration officer of immovable property may not register the transfer of property except on production to that registration officer of as prescribed certificate: a) issued by the municipality in which that property is situated; and b) which certifies that all amounts 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.
This means that if a landlord of any type of property has tenants and the tenants do not pay their share or what is due by them to municipal accounts, which includes services such as water and electricity, the municipality will not transfer a property. The constitutionality of this section was in question for many years due to the fact that tenants often created debts and arrears leaving the landlord without the possibility of transferring the property. The problem became even worse when the tenants were nowhere to be found and the landlord, wanting to transfer the property, had to pay all the debts to affect transfer.
The constitutionality of this Section 118 was in question simply because the landlord did not create those debts in actual fact, nor did the landlord use the services provided; so why should the landlord pay for them?
However, the municipality has only one interface as far as responsibility for payments on the land is concerned; and that is the landlord. The Court judgement answered some long-awaited questions concerning this problem. In this case the question was: is the landlord liable for the debts created by the tenant? The Constitutional Court basically had to decide whether those charges also related to debts of non-owner occupiers such as tenants, when in fact the tenants signed services agreements, by opening accounts such as for electricity, directly with the consumer. The Constitutional Court held that sec.118 stood the constitutional test, because, though section 118 allows for deprivation it is not arbitrary.
In simple words, the landlord can go and get copies of the tenant accounts from the municipality at any point in time. The municipality is obligated to provide a landlord such copies and hence the landlord in fact could have done something to avoid the tenant getting into arrears or arrears getting out of hand. This means that the landlord is responsible to what is happening and who he allows to dwell on the land/property. To complicate the problem further, some municipalities will discontinue the services on accounts that get into arrears while other municipalities do not, or will take too long to take action.
This leaves the landlord with a problem. If the municipality would just switch off the utilities that are not paid at least the tenant won’t create more arrears. However, this is not done by all municipalities consistently and for this reason the landlord may be left with massive arrears. At time of transfer then the landlord must pay up all arrears if transfer is to take place as to Section 118. Though this section of the Act is not new and has been creating problems for landlords, it is now been decided with this judgement that this section stands the test of the constitution. This means that landlords have to start taking serious steps not to be left with any debts from tenants.
The after effect resulting from this judgement was further far reaching at levels of municipalities. It has been reported that some municipalities have completely stopped opening accounts in the names of tenants. The boards and signs started showing up at municipalities that tenant accounts are no longer being opened at all. This is a good idea. Not only due to arrears, but also due to double accounts on some properties and general accounting mess. However, for a landlord this means that they are squarely responsible of the accounts.
Furthermore, and for the better, at least now landlords know if arrears are being created at any point in time and start taking some action before things get out of control. In terms of electricity supply, it has been reported that some municipalities no longer bother with disconnecting supply. After certain amount of arrears, they just remove the metering equipment all together. Some landlords reported arrears in excess of R20,000 and now adding to that, they need to pay R4,500 for the municipality to re-install the metering equipment.
The landlord always has the option to pursue the tenant for payment, which may or may not be achieved, but in the mean-time, the landlord cannot place a new tenant in the premises, unless they pay all due and return the meter, otherwise a new tenant cannot live in the premises without electricity – which means losses in future rental income.