WHO IS LIABLE FOR THE TENANT’S COUNCIL BILLS?
Many investors have heard of and in certain instances have fallen victim to being liable for payment of Council bills incurred by their tenant. In this article I deal with who is liable for the tenant’s Council bills, Section 118(1) of Local Government Municipal Systems Act 32 of 2000, the effects of the Judgment of Mkontwana vs Nelson Mandela Metropolitan Municipality and Another and lastly recommendations which will assist owners of properties in protecting themselves.
Generally speaking, in Law, the party that incurs a debt is the party responsible for payment thereof. It would seem natural then that a tenant would be liable for consumption charges that he incurs and that same would not interfere with the owner/landlord’s rights in the property much less make him liable for same. In practice however, the situation is more complex as a result of legislation that in effect burdens owners in relation to consumption charges supplied to tenants who occupy their immovable property.
2. Section 118
2.1. Section 118(1) of Local Government: Municipal Systems Act (“the Act”) places limits on the owner’s power to transfer immovable property. The Registrar of Deeds is restricted from allowing the transfer of any property without a certificate issued by the Municipality confirming that the consumption charges due during a period of two years prior to the date of issue of the certificate have been paid.
2.2. Despite the liability of the consumption charges not being directly attributed to the owner, by virtue of s118 placing a restriction on transfer, in practice the only way the owner would be able to transfer the property is to settle the outstanding debt for consumption charges created by the tenant.
3. The Court Decision of Mkontwana vs Nelson Mandela Metro
3.1. The Constitutional validity of Section 118 was the very subject matter of the Mkontwana matter referred to the Constitutional Court for Judgment. It was argued that Section 118(1) burdened owners in relation to payment for consumption charges supplied to tenants who occupy the property. Section 118(3) of the Act confirms in effect that the consumption charge owing is a “charge upon the property in connection with which the amount is owing and enjoys preference over any mortgage bond registered against the property”. Certain by-laws with similar effect to Section 118 were also challenged in this case.
3.2. In recent economic times, there has been an escalation of debt in respect of consumption charges. Owners argue that in many instances these charges are incurred without their knowledge. In many instances Municipalities are requested to cut-off electricity supply and fail to do so. In other instances, tenants illegally re-connect water and electricity. The Municipalities arguably do little or nothing to assist the owners in such instances. There are also counter-arguments by Municipalities that owners do not take action to enforce payment by the tenants.
3.3. The Applicants challenging the constitutionality of Section 118 argued that:-
3.4.1. Section 118 was unconstitutional as it contravened certain Sections of the Constitution by limiting their rights to their own property;
3.4.2. Section 118 must be interpreted narrowly that the liability by the owner of consumption charges is limited to those charges incurred by the owner, excluding those of the tenant;
3.4.3. It is inconsistent for Section 25(1) of the Constitution as it amounts to an arbitrary deprivation of property.
The Court agreed that “it was correctly pointed out that these Laws do not literary require the owner to pay outstanding consumption charges. The reality is, however, that if the person liable for the debt does not, or cannot, pay, the owner who wants to effect transfer must, unless the relevant agreement provides for a party other than the owner to effect the payment, pay all outstanding consumption charges. The payment must be made regardless of whether the owner is liable to pay”. The Court agreed that “there are a substantive obstacle to alienation that constituted deprivation of property within the meaning of Section 25(1)”. In the circumstances the Court had to determine whether such deprivation is arbitrary or procedurally unfair.
3.4. The core question which the Court had to determine was whether it is the Municipality or the owner of a property that should bear the risk when tenants who are liable for consumption charges fail to make payment.
4. Court Decision:
The Court found that despite Section 118 depriving an owner of his rights in relation to his property, that it was reasonable and necessary for the following reasons:
4.1. The Municipality does not merely have the power to take steps to evict a tenant and only an owner can do so.
4.2. It is therefore not unreasonable to expect the owner to bear the risk in respect of same.
4.3. The supply of water and electricity to a property increase the value of that property for which the owner ordinarily receives a benefit through rentals.
4.4. It is accepted in Law that owners of properties have to bear the risk in relation to many other occurrences as an integral part of the right of ownership. For example, they bear the risk if the property is damaged or destroyed. Similarly, Section 118(1) places a further burden by virtue of the right of ownership.
One aspect that if often not transmitted in the media is that, despite the Court having found that Section 118 is Constitutional, the Court confirmed that Section 118(1) does not relieve the Municipality of its duty. In this regard, a Municipality is required to:-
- Do everything reasonable to ensure appropriate collection of its debts.
- “If the inefficiency of the Municipality degenerates to the extent where it can be proved to be negligence that occasioned damage to the owner of the property concerned, owners may have a delictual claim for damages against the Municipality”.
- It is necessary for Municipalities to have reasonably accurate records and that they are able to provide complete, credible, comprehensible and reasonably detailed information in relation to consumption charges that are owing within a reasonable time of being requested to furnish it.
- Municipalities must provide owners of properties with copies of all accounts, whether the owner is the occupier or not, on a written request of the owner.
5.1. Choose tenants carefully.
5.2. Do proper credit checks.
5.3. Include provisions in lease agreements which include an obligation on tenants to pay consumption charges and, in addition, keep the owner informed of such payments.
5.4. Owners can install prepaid electricity meters on the premises and require occupiers to pay for the use of electricity in advance.
5.5. Owners must take immediate steps to enforce lease agreements and/or evict tenants who breach the lease agreement by failing to effect payment of consumption charges.
5.6. Request municipalities to provide a copy of consumption charges to the owner.
5.7. Notify the Municipality of any unlawful occupier and request assistance by the Municipality to cut off electricity supply (a Municipality is currently not allowed to cut off water supply).
5.8. Worst case scenario, as Section 118(1) relates to charges for two years preceding the request for the certificate, an owner can wait out the two year period prior to selling the property. In this instance, it would be essential for the owner to evict the errant tenant to ensure that the liability is not ongoing.
PREPARED BY RUI MARTO
MARTO LAFITTE & ASSOCIATES INC
31 May 2012