We saw the introduction of a new regime for local authority rates on commercial properties. Our Restructuring & Insolvency team considers some of the key issues for all involved in commercial property.
A new commercial rates regime came into effect on 1 January 2024.
Some key highlights include:
- a requirement to pay outstanding rates before completing a sale, subject to criminal sanctions for non-compliance;
- a difficulty with the definition of “liable person”;
- a discontinuity with the old regime; and
- no limitation period applies to a charge over the premises in respect of unpaid rates.
The new regime
The changes are being introduced by sections 1 to 22 of the Local Government Rates and Other Matters Act 2019 (the “2019 Act”) (as amended by sections 262 to 274 of the Historic and Archaeological Heritage and Miscellaneous Provisions Act 2023) (the “2023 Act”). References below to sections are to sections of the 2019 Act, as amended, unless otherwise indicated.
We commented on the 2019 Act when it was a Bill, noting that, amongst other things, it did not operate as understood by the Minister for State, who introduced it on its Second Stage. Following lobbying by amongst others, the Law Society, the relevant provisions were not commenced until amended by the 2023 Act. The amendments resolve some of the issues but introduces a few new ones.
The definition of Liable Person
Section 4(4) provides:
“(a) Subject to paragraph (b), the following persons (in this Act referred to as a ‘liable person’) are liable to pay the rate levied under this section:
(i) the occupier of the relevant property on the day specified in subsection (3);
(ii) if the relevant property is unoccupied on that day, the person who is for the time being entitled to occupy the property on that day.
(b) Where a rate has been levied in respect of a relevant property in any local financial year and the liable person to whom a rates bill has been given under this section ceases to be the liable person in respect of the relevant property before the end of that year and has not paid the rate so levied, such liable person shall be liable to pay that portion of the rate levied in respect of that part of that year during which he or she remained the liable person and the remaining portion of the rate shall be levied on any subsequent liable persons on a pro-rata basis in respect of that part of that year in respect of which they were such liable persons.”
The day specified in subsection (3) is the first day in the local financial year, for now, 1 January.
Section 4(4)(b) only applies where a person ceases to be a liable person during a local financial year. It does not cause them to cease to be a liable person by virtue of a change in occupation or ownership.
The text implies that the Oireachtas intended that the liable person could change in the course of a year. However, quite simply, there is nothing in subsection (4)(b), or elsewhere in the Act to cause a liable person to cease to be a liable person before the end of the financial year.
As the Act relates to raising money and includes criminal sanctions, based on Bookfinders v. Revenue Commissioners[1] , a purposive interpretation, provided for by section 5 of the Interpretation Act 2005 in respect of most statute law, is not available.
The safest approach is that where a liable person sells a property, they should pay the rates for the full year. They could then recover in respect of the fraction of the year remaining following completion using contractual apportionment. This is exactly what happens where the vendor has paid the rates in full in any event.
Duties on selling
Owners are not liable to pay rates due by former occupiers on sale. Only a liable person who is selling is obliged to pay before sale, and they are only obliged to pay rates for which they are liable as a liable person.
Section 13(1) provides:
“The liable person in respect of a relevant property who proposes to sell the property shall, before the completion of the sale, pay to the local authority concerned any rates imposed under this Act and accrued interest which is due and payable in respect of that property—
(a) for the period up to and including the day immediately before such completion, and
(b) for which the person is liable in the person’s capacity as a liable person.”
Given that there are criminal consequences for failure to comply with this section, if there are any arrears of rates, specific advice should be obtained as to whether or not the vendor is a liable person and, if so, the date on which they became a liable person. Difficulties will arise if a vendor proposes to sell and discharge the rates from the proceeds of sale, even if that is only one day late.
A discontinuity arises from the use of the phrase “any rates imposed under this Act”, so that section 13(1) does not apply to rates imposed under an earlier regime.
Effect of sale
A sale by an owner will cause any charge attaching to the property in respect of rates payable by former liable persons arising under the new regime to cease (section 14(2A)).
That said:
- a charge which arose under the previous legislation and attached prior to 1 January 2024 may remain; and
- where a charge had not already attached in relation to rates imposed under the previous legislation, it appears that there will no longer be an obligation to discharge those rates on sale and that no charge can arise. However, the liability to pay the old arrears remains.
Notification requirements
There are two separate notification requirements.
First, under section 10(2A) a liable person is obliged to notify the local authority within 10 working days on becoming aware that any particular detail entered in the local authority rates database about him or her or the relevant property is incorrect or has ceased to be correct.
Secondly, under section 11(1) a person is obliged to notify the local authority within 10 days when they:
- become a liable person;
- cease to be a liable person; or
- change the nature of their liability, for instance by letting a premises or taking possession from an occupier.
There are criminal sanctions for failures to notify under either of these provisions. Accordingly, the safe approach to these provisions is to notify the local authority of any change in occupation or ownership, potentially including where it comes to the attention of a landlord that a tenant or licensee has ceased to occupy without any agreement.
Abatement of rates
Section 9 empowers local authorities to make schemes providing for the abatement of rates on vacant properties and to set the maximum level of abatement. Previously, this was 100% in most places and 50% in others. We have examined the approach of a handful of local authorities and note by way of examples that Dublin City Council has provided for no abatement, while Cork City Council has provided for 50%.
Comment
The new rates regime should be broadly welcomed by landlords and secured lenders. as it makes it clear that they can dispose of properties without discharging rates, imposed under the new regime, which are unpaid by occupiers.
However, the requirement to discharge arrears before completing a sale, combined with the difficulty regarding the definition of a liable person will likely lead to some vendors needing to engage in short-term borrowing to discharge rates on selling.
Separately, the reduction in the abatement of rates on vacant properties may cause landlords to defer taking possession back from tenants for as long as possible, unless they have another letting arranged.
The content of this article is provided for information purposes only and does not constitute legal or other advice.
[1] [2020] IESC 60
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