The primary propose of the Local Government Rates and Other Matters Act, 2019 (the "Act") is to:
"revise the law relating to the collection of rates in relation to certain properties, to provide for the establishment and maintenance of a database of those properties in the State, to provide for the amendment and repeal of certain enactments...."
The Act contains a number of key provisions that affect lending secured on commercial property including:
- a duty to inform rating authority of transfer of relevant property;
- the payment of rates on sale of relevant property;
- the discharge of rates by set-off; and
- that unpaid rates are to be a charge on property.
The Act, once commenced, will result in landlords being liable for rates owed by tenants and will also have consequences for lenders that have loans secured by property that is subject to rates.
Duty to inform rating authority of transfer of relevant property
Section 11 of the Act provides that it shall be the duty of the seller of a property or an interest in a property that is subject to rates to provide or procure the provision of written notification to the relevant rating authority of the sale within two (2) weeks of the completion of the sale. There is also a duty on the person transferring the property (being either the occupier or the owner) to discharge all rates up to the date of the sale of that property.
In the event that a lending institution has: (a) appointed a receiver to sell a property or (b) has taken possession as mortgagee, it appears that it will be required to pay any unpaid rates on that property together with accrued interest before completing the sale of that property.
The owner of a relevant property shall be liable for a charge (equivalent to not more than two (2) years of the outstanding rates due from the previous occupier) where the previous occupier failed to notify the local authority in writing of a transfer of relevant property and the rates were not paid in full.
As the Act does not distinguish between the liability of the owner of a property and a tenant for unpaid rates, it appears that the effect of this section is to potentially impose liabilities on lending institutions and landlords (as applicable) for the failure of occupiers to pay rates.
Payment of rates on sale of relevant property
Section 13(1) provides:
"The owner 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."
The breadth of the definition of "owner" in relation to a property that is subject to rates, means a person (other than a mortgagee not in possession) who, whether in that person's own right or as trustee or agent for any other person, is entitled to receive the rent of the property or, where the property is not let, would be so entitled if it were so let.
This definition of owner in this section implies that a receiver or a mortgagee in possession would be obliged to discharge any rates and interest due in advance of completing a sale of the property. Consequently, the Act, once commenced will make lending institutions liable for rates which have not been paid by occupiers.
The Act also provides for the accrual of interest on any rates due and payable to the local authority which shall be payable prior to the completion of any sale of a property.
Discharge of rates by set-off
The Act provides local authorities with a right of set off in relation to rates that are due and owing.
Section 7 provides:
"Where a sum is due to any person by a local authority and, at the same time, a sum is due to such local authority by such person in respect of rates the former sum may be set off against the latter either, as may be appropriate, in whole or in part."
It is unclear how this set off will work in practice, particularly where a lending institution has taken possession as mortgagee or where a receiver has been appointed, in each case, over multiple properties. Given the breadth of the definition of owner this provision could potentially permit a local authority to apply set off against a receiver/mortgagee disposing a number of properties owned by the same borrowing owner (for the purpose of Section 13(1)) owing the sums to the local authority.
Unpaid rates to be a charge on property
To the bolster a local authorities rights, Section 14 provides that any unpaid rates together with accrued interest on a relevant property will be a charge on the property. The charge will continue to apply without a time limit until such time as all unpaid amounts are paid in full, such a charge would take priority over a lender's subsequent charge. This may adversely impact the ability to raise finance secured on such property.
The general 12 year recovery period provided under section 36 of the Statute of Limitations 1957 does not apply in these circumstances and the charge shall apply to the property until all rates and accrued interest have been paid in full.
While the Act has not yet commenced, if it is not immediately amended to ameliorate its impact on landlords and lenders it could have a material impact on the acquisition and sale of commercial properties on which rates are owing.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.