Section 118 – Why High Clearance Figures Can Derail Property Transfers & Bridging Finance

An industry guidance article for property professionals, financiers, and conveyancers — with specialist contribution from Municipal Debt Specialist (MDS) – Livanos.

A Deal That Should Have Worked — But Didn’t

Every property professional has seen it.

A willing seller.

A committed buyer.

Financing broadly in place.

Transfer seemingly imminent.

And then — high municipal rates clearance figures arrive.

Suddenly, the numbers no longer make sense. A transaction that should have proceeded smoothly stalls, sometimes collapses entirely. What appeared to be a viable deal dissolves under the weight of unexpectedly high rates and taxes clearance figures.

This is not always the result of fraud, incompetence, or bad faith. More often, it is the product of misunderstood statutory risk, time pressure, and human desperation converging at the worst possible moment.

The Liquidity Problem Nobody Wants to Talk About

Bridging finance exists precisely because many sellers are cash-strapped at the point of sale. Their wealth is tied up in the property itself, and liquidity only arrives once transfer is registered and proceeds are released.

However, when municipal clearance figures are unusually high, liquidity evaporates:

• Equity that should have bridged the transaction is consumed by municipal debt

• Short-term finance applications are declined due to insufficient cover

• A fundamentally sound sale becomes temporarily unworkable

What is often overlooked is this: the deal has not failed because it is bad — it has failed because it is blocked.

This distinction matters.

When Sellers Panic, Bad Advice Creeps In

When time pressure meets financial distress, rational decision-making falters.

Sellers who discover unexpectedly high clearance figures after signing an offer to purchase experience immediate fear:

• Fear of losing the buyer

• Fear of breaching contractual obligations

• Fear of embarrassment or judgment

In this emotional vacuum, shortcuts become attractive — particularly when “someone” claims to have a “quick solution”.

The Dangerous Myth: “Section 118 Is a Discount”

One of the most persistent and damaging misconceptions in the property industry is the belief that Section 118 offers a form of discount, reduction, or special concession from the municipality. When we refer to Section 118 it is specifically referencing Section 118 of the Municipal Systems Act.

It does not.

This misunderstanding often originates innocently:

• Municipal officials lacking full statutory understanding

• Informal intermediaries such as rates runners that conveyancing firms heavily rely on, passing on incomplete/incorrect Section 118 information to expedite matters

• Many of the rates runners tell conveyancing secretaries they will get a special discount at the municipality, by applying for an alleged “Special Section 118 Discount”

By the time the advice reaches the seller, it has become dangerously simplified.

The legal reality is stark:

• Section 118(1) is a procedural gatekeeper. It allows a clearance certificate to be issued so that a property may be transferred.

• It covers a limited 24 month period and does not extinguish historical municipal debt, not covered in the scope of the clearance certificate.

Section 118(3) creates a statutory charge over property for unpaid municipal debt that:

• Enjoys preference over mortgage bonds

• May remain enforceable for up to 30 years

• Can be enforced before or after transfer if not dealt with lawfully

Treating Section 118 as a “discount mechanism” is not just incorrect — it is commercially dangerous.

How One Shortcut Can Put Everyone at Risk

When parties rely exclusively on Section 118(1) to “get the deal through”, unresolved statutory exposure remains silently embedded in the transaction. Sometimes people realise their mistakes of paying on the clearance figures, only to realise that the payment is effectively an acknowledgement of the debt preventing the high clearance figures to be challenged.

The consequences often surface later:

• Municipalities interdict sale/proceeds before being able to register in the deeds office

• Transfers are delayed or unravelled

• Loan repayment is frozen

• Litigation follows

• Professional liability is triggered

At that point, finger-pointing begins:

• Sellers blame attorneys

• Attorneys blame intermediaries

• Financiers face reputational and capital exposure

• Buyers, sellers and estate agents are left in limbo

What began as an attempt to save time or money becomes an expensive, reputationally damaging exercise for all stakeholders.

Most Deals Don’t Fail — They Are Made to Fail

What is uncomfortable, but true, is this:

Most failed clearance-stage transactions are not the result of malice — they are the result of misunderstanding.

Good people, acting under pressure, make decisions based on incomplete or incorrect advice. The system does not forgive those errors easily.

And once statutory risk crystallises, there are no shortcuts back.

When the Right Intervention Saves the Deal

There is, however, another path.

In many cases, high clearance figures are not immutable. When addressed holistically and lawfully, municipal debt and high clearance figures can often be audited and resolved by an accredited professional in full and final settlement, removing future statutory exposure.

The practical effect is powerful:

• Previously blocked equity is restored

• Short-term finance becomes viable again

• Transfers proceed

• Repayment is secured

• Stakeholders regain certainty

This is not about replacing finance or bypassing legal processes. It is about making viable transactions viable again.

All too often bridging finance applications get declined simply because there is not enough equity or profit in a sale. By appointing an accredited professional to legally reduce the total debt on a property to address high clearance figures, pre-transfer, can rescue a bridging finance application that may ordinarily be declined.

When High Clearance Figures Cause Bridging Finance to be Declined — and Deals Can Still Be Rescued

All too often, bridging finance applications are declined not because the transaction is unsound, but because unexpectedly high municipal clearance figures leave insufficient equity or profit in the sale. In these situations, the deal stalls at the exact moment liquidity is required. Where an accredited specialist is appointed prior to transfer to lawfully audit and resolve the municipal debt driving those clearance figures, the total liability can often be reduced in a defensible, full-and-final settlement manner.

The practical result is that equity is restored, the risk profile of the transaction changes, and a bridging facility that would ordinarily be declined becomes viable — allowing a legitimate deal to proceed rather than collapse. In this way, lawful intervention does not replace bridging finance, but rescues and enables it.

Why Accreditation Matters When the Stakes Are This High

It is human nature to seek a good deal or to try save money — especially when pressure mounts. But there is a critical distinction between prudent cost management and entrusting the most valuable asset many people will ever own to unverified advice.

Municipal debt resolution and Section 118 rates clearance figures compliance demand:

• Deep statutory understanding

• Defensible methodologies

• Proven engagement with municipalities

• A track record that survives scrutiny

This is not a space for informal shortcuts or untested intermediaries.

About the Specialist Contributor

This article was prepared with input from the ConCourt accredited specialist consulting firm Municipal Debt Specialist.

Established in 2002, MDS — through Livanos — specialises in the auditing and lawful reduction of Section 118(1), Section 118(2), and Section 118(3) liabilities prior to payment of clearance figures to obtain a rates clearance certificate for property transfer.

MDS, widely regarded as the trusted experts in Section 118 of the Municipal Systems Act, makes sure that the lowest and legal amounts are settled in full. Due to the astronomical legal savings that MDS creates, many transfers are often rescued from a declined bridging finance application.

Livanos ran and won the landmark Constitutional Court case Jordaan v City of Tshwane, which reshaped the interpretation of Section 118 across South Africa.

Within municipal, financial, and conveyancing circles, the name Livanos is widely recognised as the leading authority on Section 118 of the Municipal Systems Act.

It is pertinent to note that Section 118 of the Municipal Systems Act as well as MDS expertise in reducing high clearance figures legally as an accredited specialist consulting firm, is applicable to all property transfers such as:

• Sequestrations

• Liquidations

• Distressed Sales

• Sheriff Sales in Execution

• Divorces

• Half shared Transfers

• Normal Sales

• Commercial Property

• Industrial Property

• Agricultural Property

• Residential Homes

• Deceased Estates, etc.

Final Observation

High municipal debt creates fear.

Fear creates shortcuts.

Shortcuts expose everyone involved.

Awareness at the clearance stage protects sellers, financiers, professionals, and capital alike.

In practice, the greatest damage caused by Section 118 misunderstandings is not legal — it is transactional. Deals stall, capital is trapped, relationships are strained, and blame circulates long after solutions were still possible. The common thread in these outcomes is not wrongdoing, but late awareness. When high clearance figures and municipal debt are identified early and addressed lawfully and comprehensively, transactions retain momentum, risk is contained, and value is preserved for all parties involved. In South Africa’s property transfers, understanding Section 118 is not about shortcuts or savings — it is about certainty.

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