EAST LONDON - In a landmark decision that could have a negative impact on property investment, the Constitutional Court ruled in Pretoria yesterday that landlords are responsible for the debt of their tenants if municipal services are not paid for.

The decision, which has sent shock waves through the property sector, means that property owners will not be able to sell their properties until the arrears owed by tenants - and which municipalities had allowed to accumulate - have been settled.

The local chairman of the SA Property Owners' Association (Sapoa), Mick Webb, said the judgment could lead to a backlash.

"There may be a radical attempt from people to abandon properties where the debt is too high.

"It will also encourage tenants who have run up debt to abscond."

Webb said the judgment also took away the responsibility of municipalities to conduct proper debt collection.

Bate Chubb & Dickson attorney Ashley Kretzmann, who represented a local property owner in a successful high court case against the Buffalo City Municipality which challenged the constitutionality of a section of the Municipal Systems Act, said he was devastated by the Concourt ruling.

"We believed in our case," he said. "This places the onus on property owners to ensure the debts of their tenants are paid."

Webb said owners might now have to insist on deposits which cover two years' rental.

The Concourt judgment came after Peter Bissett, a local resident, and Nedbank, backed and financed by the local branch of Sapoa, issued a challenge to the Buffalo City municipality in the high court.

Their lawyers submitted that the controversial Section 118 of the Municipal Systems Act was unconstitutional. The Act allows municipalities wide-ranging powers, including the right - when unpaid debt was owed - to refuse to issue clearance certificates needed by the Deeds Office for the registration of property transfers.

Buffalo City had collected R25 million in this way in the last two years.

In that case, Judges Frank Kroon and Eric Leach ruled it unconstitutional for local authorities to hold property owners responsible for tenants' water and electricity arrears.

The judges referred the matter to the Constitutional court for confirmation.

Yesterday, after Sapoa's national body had spent about R600000 on legal fees, the Constitutional Court gave a single ruling in three related cases.

Sapa reported that Judge Zak Yacoob, delivering judgment for the majority of the court, said that, although the laws allowed for the deprivation of property, the deprivation was not arbitrary.

The laws placed the risk on the owner of property if tenants did not pay for the water and electricity they consumed.

Yacoob held that this was an important and laudable purpose, which encouraged payment and a sense of civic responsibility. This purpose was not unreasonable.

The judgment said municipalities were obliged to provide services in a sustainable way.

Yacoob also held that municipalities had to provide owners with copies of the electricity and water accounts sent to their tenants if the owners asked for these in writing.

In addition, the court ruled that these laws did not infringe the constitutional rights to equality, access to housing or the right of access to courts.

Parties contesting the provisions argued that municipalities had shifted the responsibility of debt collection to property owners.

The South Eastern Cape High Court held in September 2003 that the provisions were unconstitutional as they allowed the arbitrary deprivation of property. This order was set aside by the Constitutional court.