Real Estate Update: The New Rates Trap

Section 32 of the Local Government Reform Act 2014 ("the 2014 Act") introduces two important amendments to the law. First, it has the effect that assignees of rateable property are no longer automatically liable for rates arrears of the previous tenant and instead, rates must be discharged by the assignor ("the Liability Crystallisation"). Second, it introduces a new notification obligation on an owner of rateable property where there has been a transfer of any interest in that property and imposes a penalty where there is a failure to notify and the rates are not discharged by the assignor ("the Notification Obligation"). These amendments will have a significant impact in the commercial property sector, particularly on landlords and receivers. This article explores the impact of these changes.

SECTION 32 OF THE 2014 ACT

Section 32 of the 2014 Act was enacted on 1 July 2014 by SI No 146/14. The overall Act represents an effort to modernise local authorities,1 while Section 32 in particular is widely seen as a measure to boost the commercial property sector.2

General

The Valuation Act 2001 contains most of the current legislation on rates. For instance, it replaced previous terms such as "hereditaments" and "tenements" with a single term of "relevant property", of which a comprehensive list is provided by Schedule 3 of that Act, while Schedule 4 thereof provides for the exemptions from "relevant property", including charities. The 2014 Act continues the use of the "relevant property" term and Section 32(1) thereof provides that "relevant property" shall be construed in accordance with Schedule 3 of the 2001 Act.

Prior to the enactment of the 2014 Act, subsequent occupiers were liable to pay rates arrears, pursuant to Section 71 of the Poor Relief (Ireland) Act 1838 ("the 1838 Act"), which provided as follows:

"every rate made under the authority of this Act shall be paid to the person authorised to collect the same by the person in the actual occupation of the rateable property at the time of the rate made, and on his default then by the person subsequently in the occupation of the rateable property from whom such rate shall be demanded."

THE LIABILITY CRYSTALLISATION

The usual practice was that rates were recoverable from subsequent occupiers in amounts of up to two years' arrears. Section 32(2)(b) now provides that, if there is a pre-existing liability to pay rates on the part of "the person transferring the property being either the occupier or the owner", that person must now pay those rates "at the date of the transfer". Schedule 2 of the 2014 Act also amends a sentence fragment from Section 71 of the Poor Relief (Ireland) Act 1838 to delete "and on his default then by the person subsequently in the occupation of the rateable property from whom such rate shall be demanded".

The Notification...