This article first appeared on LinkedIn, November 2019.
The legislation governing the levying and collection of commercial rates is spread across numerous enactments, many of which date from the 19th century and are well in need of reform and modernisation. The Local Government Rates and Other Matters Act 2019 (the “Act”) attempts to consolidate the existing legislation and update the commercial rates system. This article will explore the key provisions of the new legislation.
- imposes liability on the ratepayer, as defined in the legislation, to pay rates in respect of a relevant property;
- provides for unpaid rates to become a charge on the property;
- provides for the payment of interest on unpaid rates;
- provides for minimum rates on vacant properties;
- permits local authorities to discharge rates by set off; and
- re-enacts the section 32 notice introduced by the Local Government Reform Act 2014 Act.
Owner liable to pay rates on a sale
Section 13(1) of the Act provides that the owner of a relevant property, who proposes to sell the property, shall pay any rates and interest due, before the sale completes. The section does not distinguish between situations where the liability for payment of the outstanding rates is that of: (i) the vendor /owner of the property; or (ii) an occupier of the property such as a tenant.
On the face of it, the section would require landlords, receivers appointed over a property, secured lenders, and personal representatives vesting property in a beneficiary to discharge the tenant’s rates before transferring the property. This places a very onerous obligation on a vendor when selling or transferring an investment property.
To mitigate the risks posed by an occupier in rates arrears, the following options should be considered by owners of property:
- actively monitor the payment of rates by their tenants;
- increase the deposits being paid under new leases so that there is access to funds to pay rates if the tenant is in arrears;
- deal with unpaid rates before allowing an assignment or exercise of a break option; and
- specifically include non-payment of rates as an event of default;
Following much lobbying, the Department of Housing, Planning and Local Government agreed that the wording of the section is contrary to the intention of the Government as set out in the Explanatory Memorandum to the Act.
It is anticipated that the Department intends to remedy the section by way of a legislative amendment before the law comes into effect.
Unpaid rates to become a charge on the property
Section 14 of the Act is also problematic for the same reason and it is expected that this section of the Act will also be amended to reflect the legislature’s intention. It currently provides that any rates levied by a rating authority which is due and unpaid will remain a charge on the property, without a time limit, until such time as the rates are paid in full.
Minimum rates on vacant properties
The current system of vacancy relief permits full abatement of rates in some areas and 50% abatement in certain areas. Section 9 of the Act permits local authorities to introduce a scheme for the abatement of rates in their own area within certain guidelines to be set by the Department. It is predicted that this will result in an increase in the rates payable for vacant properties across the board.
The right to set off
Section 7 of the Act provides that local authorities may offset any rates owing to them against an amount that the local authority owes to that party. This section would appear to include receivers appointed over a property and mortgagees in possession. It has the potential to enable local authorities to apply set off in respect of receivers or banks in control of various properties without reference to the identity of the borrowers. This will no doubt lead to administrative problems.
Section 32 re-enacted
Section 11 of the Act mirrors the procedure from section 32 of the Local Government Reform Act 2014, which has been repealed. The section provides that it shall be the duty of the owner of the property, prior to transfer, to notify the rating authority in writing of the transfer not later than 2 weeks after the transfer. In addition, it will be the duty of the person transferring the property being either the occupier or the owner, to discharge all rates for which he is liable. It also imposes a penalty (a charge equivalent to a maximum of 2 years’ worth of rates) on the owner where there is a failure to notify the local authority and the rates are not discharged.
Without modification, section 11 of the Act will cause the same practical problems for landlords who are not made aware of assignments and subleases of the property by their tenants. In cases where they are made aware, landlords should exercise caution when consenting to assign and require the tenant to provide evidence from the local authority that rates are paid before granting the consent.
We anticipate that changes to the legislation will be enacted shortly in order to clarify some of the issues mentioned in this article. Until there is greater clarity around the provisions of and possible amendments to the Act, commercial property owners, landlords and banks should consider the actions outlined above in order to mitigate the risks posed by an occupier in rates arrears.
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About the Author
James is an associate solicitor in the Property team at Hayes solicitors. He has particular expertise in the areas of landlord and tenant law, the sale and purchase of commercial and residential properties and acting for lending institutions in taking security over property.