Property sellers must budget for advance municipal rates payments

19 May 2017

Apart from the cost of inspections and obtaining various certificates, property sellers also need to budget to pay municipal rates and taxes in advance.

This is to cover costs while their property transfer is being completed.

Normally transfer takes about three months, which is the amount most municipalities will charge up front, before issuing the vital rates clearance certificate (without which a property cannot be transferred to the buyer).

"Sellers need to keep in mind that they'll need to budget for the rates clearance costs, as well as the various Certificates of Compliance and any renovations / alterations required to obtain those. This is especially critical if it's an emergency sale due to financial constraints, or the sellers are simultaneously buying another property, which could affect their cash flow in the short term", advises Bruce Swain, CEO of Leapfrog Property Group.

What if the municipality requires more than a 3 month payment?

As stated, it's common practice for municipalities to ask for advance rates payments to cover the transfer period which is normally about three months for residential properties. However, in some cases the local municipality might ask for payments to cover a longer period, preferring to refund any extra fees, rather than trying to collect them from the seller at a later date.

However, in a recent case involving the Nelson Mandela municipality, Amber Mountain Investments 3 was asked to fork out R 1 million (the estimated rates for one year), before the municipality would issue the rates clearance certificate.

The Supreme Court of Appeal has ruled in the matter, stating that municipalities cannot demand that property sellers pay in advance for many months of rates, before issuing the certificate. Aidan Kenny, director and property specialist at Werksmans Attorneys, explained that; "The ruling now vests sellers with the right to refuse to pay rates and charges for any amount in advance beyond the date of the certificate when applying for a rates clearance certificate".

He goes on to say that; "It also imposes an obligation on municipalities to change their policy to comply with the various acts applicable, forfeiting their right to collect advance rates and charges due in future prior to issuing a rates clearance certificate."

"Leapfrog Property Group supports this decision; very often there is a huge time delay where municipalities have to refund rates etc. paid in advance and the whole approach inhibits the property sales process. Avoiding this kind of situation will not only speed up the transfer process, but will also ease the financial burden (and administrative hassle of getting a refund) on sellers", believes Swain.

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