Important Development Regarding Commercial Rates

Breen Purcell explores the changes to payment of rates that will affect property owners.

Section 32 of the Local Government Reform Act came into force on 1^st July 2014 by virtue of SI No. 146/14. Section 32 is concerned with commercial rates, and creates new duties for property owners on the sale or lease of property which is liable for such rates. Local authorities are statutorily obliged to levy commercial rates on all properties used for commercial purposes, with each local authority being responsible for the levying and collection of rates within their area. Prior to the commencement of section 32, the person liable for the payment of rates was the person in occupation of the property on the date they fell due. Where the property in question was unoccupied on this date, the owner would be held liable. Where a person’s occupancy began after the date of the making of a rate, that person could still be held liable for up to two years arrears of rates where the rates had been left unpaid by the previous occupier. Under the new provision, owners of relevant property are obliged to notify the rating authority (local authority) of any transfer of interest in the property which closes on or after the 1^st July 2014 where the transfer results in a change in the occupier liable for commercial rates on that property. In the case of a sale of property, there is an obligation placed on vendors to notify.  In the case of an assignment of interest by a tenant there is a similar obligation placed on landlords. Section 32(2)(b) also creates new requirements that the person transferring the property, either the occupier or the owner, must pay all rates liabilities  at the date of the transfer of the property or interest in the property. Section 32(3) operates so that any rates due which are not paid on the transfer will remain as a charge which will affect the property for up to twelve years. Section 32 operates to strengthen local authority collection powers. We will explore below the effect of Section 32 on the transfer of property from the perspective of the different parties. The “relevant properties” referred to in section 32 and affected by this provision are to be read in accordance with Schedule 3 of the Valuation Act 2001.  This refers to all types of commercial property (buildings, profits á prendre, tolls, easements etc.) which is occupied and is capable of being the subject of rateable occupation. Receiver Sales Section 32 will have a significant impact on the way commercial rates are dealt with in Receiver sales. Pre-July 1^st 2014 the accepted practice in such sales was to deal with rates arrears on the basis of the purchaser’s legal liability for same, whereby purchasers would be liable for up to two years arrears. The effect of section 32 is that the current practice will no longer be possible, as any unpaid arrears will become a charge on the property. Receiver’s Perspective In respect of all receiver sales, the onus will be shifted back onto the receiver who will now be obliged to notify the rating authority of any sale within two weeks of that sale and to pay all outstanding rates arrears at the time of sale. This will result in significant extra costs for receivers who are often already selling the property at a decreased value. What are the repercussions for receivers should they neglect their duty to notify the local authority resulting in their arrears becoming a charge on the property?  Where a receiver fails to notify, the rating authority may impose a penalty of up to two years arrears in addition to the arrears already owed by receiver. The amount of the penalty is at the discretion of the rating authority, and serves as an extra enforcement power. The Purchaser Section 32 seeks to ensure that all rates are discharged before the transfer of property, and operates so that subsequent occupiers are not affected by any outstanding rates. The Landlord Section 32 obliges landlords to notify the rating authority of any transfer of interest by a tenant within two weeks of that transfer. Failure to do so will result in the landlord becoming liable for a charge equivalent to no more than two years outstanding rates due. Similarly, where a landlord does notify the rating authority of a transfer of interest but where the tenant does not discharge the outstanding arrears, the landlord will be similarly liable. In order to protect themselves, landlords should withhold consent to any assignment until they are satisfied that all outstanding arrears have been paid by tenants. In order to do so, landlords would be wise to insert clauses in any lease prohibiting any assignment by tenants without the landlord’s prior consent. Rating Authorities In response to section 32, local authorities have issued section 32 Declaration forms which will facilitate vendors and landlords in fulfilling their obligations under the act when transferring property or an interest in property. For further information on this issue contact Breen Purcell, Partner in our Property Department.

Remember that this article is for information purposes only and does not constitute legal advice. Case law is fact specific and readers should understand that similar outcomes cannot be assumed. Specific advice should always be taken in given situations.