Rates Clearance Certificate: All You Need to Know

A Rates Clearance Certificate (RCC) is a vital document required for property sales in South Africa. Without it, the transfer of ownership cannot be completed.

This guide will help you understand the importance of the RCC, the process of obtaining one, and how municipal debt impacts the transfer. Whether you’re a property owner, conveyancer, or buyer, this essential information ensures a smoother, legal transaction, saving time and avoiding costly issues down the line.

What is a Rates Clearance Certificate?

A Rates Clearance Certificate is a legal document issued by a municipality, confirming that all municipal debts tied to a property have been paid in full under Section 118(1) of the Municipal Systems Act. This includes outstanding rates, service charges, and other municipal fees, such as water and electricity bills.

Without this certificate, a property sale cannot be finalised because the transfer of ownership will not be registered with the Deeds Office. However, many people mistakenly believe that an RCC clears all debts tied to the property. In fact, it only certifies that municipal debts for the past two years (24 months) have been fully settled.

Depending on the municipality, the RCC may go by various names, including Clearances Certificate, Rates Certificate, Clearance Memo, RCS Certificate, Water and Electricity Clearance Certificate, Lexis Rates Clearance, e-Clearance. Despite these different titles, they all serve the same function. So, don’t let the varying terminology cause confusion.

Why is a Rates Clearance Certificate Required?

The Municipal Systems Act demands that a Rates Clearance Certificate be issued before the transfer of any property can be registered. In simple terms, the law prevents the registrar of deeds from completing a property transfer unless the prescribed certificate is produced, proving that municipal debts for the previous two years have been settled.

Here’s an excerpt from Section 118(1) of the Act:

“A registrar of deeds may not register the transfer of property except on production of a prescribed certificate:

(a) issued by the municipality or municipalities in which that property is situated; and
(b) certifying that all amounts due for municipal service fees, property rates, and other municipal charges during the two years preceding the application date for the certificate have been fully paid.”

What Happens if I Pay for a Clearance Certificate Without Settling the Full Debt? Is the Balance Written Off?

Unfortunately, this is a shortcut that some professionals attempt to use, but it can lead to serious legal complications both before and after the property transfer. Paying for a Rates Clearance Certificate without settling the full municipal debt does not mean the remaining balance is written off.

Municipalities are legally entitled to recover any outstanding debts, even after the clearance certificate has been issued and the property has changed hands. In fact, municipalities often employ debt collectors to ensure these outstanding amounts are recovered.

There is a substantial body of litigation and numerous court judgments on this issue, and it is well-established in law that municipalities have preferential rights, even over bondholders like banks. This means that municipalities can still claim the unpaid amounts, which can cause serious complications for both the buyer and seller.

However, if there are errors in the amounts claimed by the municipality or incorrect charges, the law limits recovery to only the correct and legitimate debts. This is where our expertise becomes critical. At Municipal Debt Specialist, we don’t just focus on obtaining a clearance certificate. We conduct a thorough audit of the property’s municipal account and carefully examine any historical debts claimed by the municipality. In many cases, we are able to dramatically reduce these claims by identifying and correcting inaccuracies in the billing.

By ensuring that only the accurate debts are paid, we help protect our clients from post-transfer complications and ensure that both buyers and sellers can proceed with peace of mind.

When is a Rates Clearance Certificate Needed?

A Rates Clearance Certificate is typically required when a property is sold or transferred. The conveyancer, who handles the legal aspects of the sale, applies for the certificate on behalf of the seller. Without it, ownership of the property cannot be transferred.

How to Obtain a Rates Clearance Certificate

To secure a Rates Clearance Certificate, the following steps are involved:

1. Requesting Clearance Figures: The conveyancer applies to the municipality for clearance figures. These figures represent the amount of outstanding debt that must be settled before the RCC is issued.
2. Payment of Debts: All outstanding rates and charges for the past 24 months, plus an additional four months in advance to cover any future charges that may arise during the transfer process.
3. Issuance of the Certificate: Once the debts are settled, the municipality issues the Rates Clearance Certificate to the transferring attorney or conveyancer. The certificate is then submitted to the Deeds Office as part of the property transfer process.
4. Property Transfer Registration: After the RCC is submitted, the property transfer can be finalised, allowing the buyer to become the legal owner.

Why Does It Sometimes Take Longer to Get the Figures or the Certificate or Rates Clearance Figures?

The process of obtaining a Rates Clearance Certificate can sometimes be delayed due to issues with the municipality’s records. Common problems that can cause delays include:

1. Missing service charges: Sometimes a key service, like water or electricity, has not been billed correctly.
2. Outdated meter readings: Meters may not have been read for an extended period, leading to incorrect charges.
3. Incorrect meter numbers: The meter numbers linked to the property account could be incorrect.
4. Illegal reconnections: If a property’s supply was terminated but illegally reconnected, this must be resolved.
5. Linked accounts: Old accounts, like those from previous owners, body corporates, or developers, might still be active and incorrectly billed.
6. Unpaid engineering contributions: Rezoning applications may be approved, but the required engineering contributions remain unpaid.
7. Disputed amounts: If the seller disputes the amount owed, it can cause delays.
8. Objections or appeals: The seller may have lodged an objection to the property valuation or requested a tariff change, which could delay the certificate.

Addressing these issues early can prevent delays, and working with Municipal Debt Specialist ensures that certain discrepancies are quickly resolved.

 

How Long Does it Take to Get a Rates Clearance Certificate?

 

The time frame for obtaining a Rates Clearance Certificate can vary, but it typically takes between 7 to 21 business days, depending on the municipality and how quickly debts are settled. Delays can occur due to issues like discrepancies in the municipal account or backlogs at the municipality.

The above process obviously includes applying for the actual Clearance Figures first. At this point this is where Municipal Debt Specialist would get involved if the Figures and/or older debts beyond the two-year period are incorrect or high.

Who Pays for the Rates Clearance Certificate?

In a typical sale, the seller is responsible for paying all fees associated with obtaining the RCC, including settling outstanding municipal debts and service charges. However, this can vary depending on the sale agreement between the parties.

Can You Apply for a Rates Clearance Certificate on Your Own?

Technically, a seller can apply for a Rates Clearance Certificate on their own, but it’s usually handled by a conveyancer as part of the property transfer process. The conveyancer manages the payments and communicates with the municipality on behalf of the seller.

What Happens if a Rates Clearance Certificate is Not Obtained?

If an RCC is not obtained, the property transfer cannot proceed. The Deeds Office will refuse to register the transfer of ownership, causing significant delays or even causing the sale to fall through.

Section 118 and the Rates Clearance Certificate

Section 118 of the Municipal Systems Act governs the issuance of Rates Clearance Certificates. While Section 118(1) requires that all municipal debts from the previous two years be settled, Section 118(3) allows municipalities to recover older debts even after the property transfer has been completed. This can catch buyers off guard if they are not aware of additional liabilities.

At Municipal Debt Specialist, we were instrumental in challenging some of the illegal practices surrounding Section 118(3), and we have received constitutional court vindication. Our Consulting Practice is trusted by many when dealing with incorrect or High Clearance Figures and Rates Clearance Certificates.

Conclusion

A Rates Clearance Certificate is crucial for ensuring a smooth and legal property transfer in South Africa. It offers a limited form of protection to municipalities from unpaid debts and ensures that property transfers can be completed without complications. By understanding the process and working with experienced professionals, both sellers and buyers can avoid delays and unexpected debts.

If you need assistance with incorrect or High Clearance Figures, or if you’re dealing with complex municipal debts, contact Municipal Debt Specialist for professional guidance and support.

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