S118 (SYSTEMS ACT) Practical Implications

1. S118 (SYSTEMS ACT)Practical Implications • Highly controversial piece of legislation • Act requires: - that a Municipality must certify that all amounts due in connection with a property, during the two years preceding the date of application of a clearance certificate, have been fully paid - that this section must take cognisance of Section 89 of the Insolvency Act - that the debt is a charge upon the property

2. Practical Implications (ctd) • The Act became effective on 01 March 2001 - Problem: Durban previously supplied water and electricity services to all consumers, but each municipal entity was responsible for the collection of its own rates and sundry charges - In mid 2003 the entities were brought together operationally, and only then was theAct fully applied in the Durban context

3. Practical Implications (ctd) • Some of the practical challenges we face, include: - Internal Communication A property is sold. After a clearance certificate is issued, a rates adjustment notice (RAN) is received, which is backdated to a period prior to sale of the property. Solution: RAN becomes effective from date of transfer of property

4. Practical Implications (ctd) - Computer Systems Not yet fully integrated. Different format for names and addresses, hence required skilled staff in each of the disciplines of Water, Electricity and Rates to identify outstanding amounts, including illegal connections (water & electricity) and illegal structures on the properties. This is time consuming and a major challenge to remain within the 5-day turnaround time i.t.o. the Ordinance. Solution: 1. All Rates accounts converted to monthly accounts 2. Consolidation of consumer and Rates accounts – wef Aug 05 3. Development of a new Revenue system – July 06

5. Practical Implications (ctd) - RD / Stolen Cheques Accounts paid immediately prior to transfer. Payment accepted in good faith. This is only detected after transfer is finalised. Solution: 1. Trace errant debtor 2. If not successful, charge the new owner

6. Practical Implications (ctd) - Two Year Limitation The Act permits us to recover debt from the Seller relating to only the two year period immediately preceding the date of application of the clearance certificate. If any debt is older than two years, the seller is not obligated to pay this amount. Solution: We advise conveyancer of any old amounts outstanding, and the fact that the buyer will be held responsible. The clearance certificate is endorsed accordingly.

7. Practical Implications (ctd) - Landlord / Tenant Probably the most controversial issue. The landlord / owner of a property is held responsible for any debts incurred by his tenant. This matter caused much debate which culminated in a high court decision supporting Council’s decision to recover outstanding moneys from the landlord. If a tenant vacates the premises and there is still moneys owing, the owner is held liable for this debt. Solution: Landlords must take a more active role in the affairs of the tenant, particularly as it relates to the payment of municipal charges. Certain landlords are now registering the electricity and water accounts in their own name. If the tenant does not pay his account, the landlord can then request Council to disconnect the services to the tenant. They can also use this as a lever if their rent is not paid.

8. Conclusion Whilst Section 118 is assisting Municipalities in their debt collection efforts, it is causing a lot of unhappiness. It has certainly created a lot more work for the staff. However, if a Credit Control and Debt Management Policy is in place, and the Council adheres strictly to this policy, some of these situations could be eliminated.