In October the Constitutional Court released three rulings of significance to the housing sector and social housing/rental sector. Two of the rulings relate to an earlier decision of 2003 based on the Prevention of Illegal Eviction and Unlawful Occupation of Land Act (PIE) and the third ruling relates to the application of the Municipal systems act.

The SHF provides a summary of the rulings below, and the highlights the implications for the social housing/rental sector specifically. The SHF has made submissions to the NDOH on amendments required to the PIE legislation and the urgency of this. The SHF is currently seeking legal opinion on what can be done to address the implications of the Municipal systems act ruling.

The question put before the constitutional court was essentially what happens when tenants do not pay for municipal services and leave the property with unresolved bills and owners are then put in a position where they cannot transfer a property as there is no municipal clearance certificate. Does such a law constitute ‘an arbitrary deprivation of property’, which is unconstitutional? The constitutional court decided not and overturned the earlier rulings and maintains that the owner of a property is liable for outstanding consumption charges. The reasoning is twofold: (1) the municipality may not always be in a position to determine who incurred the costs but it has certainty about the owner, and (2) it also means that property owners are responsible for managing the costs that are incurred on their properties. Thus section 118 (1) of the Local Government Municipal Systems Act, Act 23 of 2000, stands and outstanding bills become the responsibility of the owners if they wish to gain a clearance certificate and ‘alienate’ their property.

"This matter is about whether a law which permits the sale in execution of people’s homes because they have not paid their debts, thereby removing their tenure, violates the right to adequate housing, protected in section 26 of the Constitution" writes Constitutional Court Judge J Mokgoro. The final decision is that a court should determine if the execution of property is the correct result using the following points as criteria to help make the decision:

• Households whose homes are worth a great deal more (a ratio for which is still to be determined) than the money that they owe.
• Other methods of paying off the loan including instalment plans can be negotiated between the various parties.
• The circumstances from which the debt arose
• The ability of the household to be able to access adequate housing again – if they lose their state-subsidized home will they be able to access adequate shelter.
• The financial situation of the party to whom the money is owed.
• If the debtor is employed or likely to find employment.

The fact that a court interdict is needed to execute a property means that an individual or household cannot be summarily evicted and his/her property sold, rather there has to be a court order. It is at this stage in the proceedings that the court can decide if the case is influenced by one of the mitigating criteria mentioned above. Using such a system it is hoped that the constitutional rights both to access housing and to dignity are not infringed whilst ensuring that businesses and individuals can recoup their losses.

A small community of 68 people, living in 29 shacks on private piece of ground known as Lorraine were ordered to move when the surrounding community of 1600 people signed a petition to have them evicted. The High Court had delivered the eviction order but the decision was appealed and overturned at the Supreme Court of Appeal who found in favour of the informal dwellers. The municipality then took the case to the Constitutional Court. Once again the Municipality requested permission to evict the community. The Constitutional Court found in favour of the Lorraine community and denied their eviction because of:

1. The lengthy period of the community’s stay on the property.
2. The land is not needed for anything else at this point.
3. The municipality has made no attempt to engage with the community to find out their perspective, needs, and unique situation.
4. The land found for their relocation is unacceptable and demonstrates a genuine lack of attention and care on behalf of the municipality.
5. The group is, according to the ruling, genuinely homeless and is not trying to ‘jump the queue’ as such is entitled to homes or to be left alone.

The ruling essentially upholds the principles of PIE showing that evictions need to be carefully considered by the municipality.

PIE introduces additional procedural requirements and an additional substantive requirement (namely that eviction must be just and equitable) before an unlawful occupier can be evicted. It builds on the existing statute and common law and leaves it fundamentally intact. This has two direct effects: (1) tighter screening and deposit requirements for occupants applying for rental accommodation as a risk management measure and (2) additional legal fees and expenses to be incurred by an institution doing an eviction. A third effect has been the reluctance by the courts to grant eviction orders, causing further delays and costs to the institutions.

Landlords being held liable for resident’s outstanding municipal service charges will have the greatest effect on access to rental accommodation for lower income earners, as they would be mostly likely at risk to default. While the private sector property owners are outraged by the ruling as it affects their ability to sell their properties, it affects the social housing institutions in a slightly different way. Social housing institutions will have to apply tighter screening and deposit requirements for residents to cover the potential risk of defaults on rental and service charges. They will also require enhanced systems to be able to track the municipal service charges and rental charges of the residents, should a default occur. Residents can take advantage of the situation by purely defaulting on both rental and service charges and the Municipality can take advantage of the situation through lagging on their billing and collection process. This leaves the landlord or social housing institution exposed and at risk.

Overall residential rental accommodation is becoming a high risk and costly undertaking. The notion of providing affordable rental accommodation for low income earners is necessary and yet has a legislative framework making it a high risk undertaking. This will limit the attractiveness of this option for potential funders who might be interested in investing and will require a range of risk mitigation measures that would potentially make the option unaffordable to lower income residents.