Commercial rates - who is liable?

Commercial rates - who is liable?

With increased focus on the costs of doing business in Ireland, commercial rates and the level of same are under increased scrutiny.  When a business fails, where does liability fall for unpaid commercial rates? Louise O'Donovan, Partner, examines the issues.

Striking the rate and calculating liability
Commercial rates have their foundation in the relief of poverty legislation of the 1800's, but are now a tax levied by local authorities on commercial premises to fund services in their administrative areas and represent an important source of income for local government.

Early each year, local authorities "strike" the rate for their administrative area meaning that the annual multiplier is agreed at a meeting of councillors. This figure is then multiplied by the Rateable Valuation ("RV") of each property to determine the level of commercial rates payable in respect of each property in a given year.  The RV is calculated periodically by the Commissioner for Valuations and published in the Valuations List.  It is possible to appeal the valuation if the ratepayer believes that the RV is incorrect.

Liability of the occupier
It is well established under statute that commercial rates are levied on the occupier of property regardless of ownership.  While commercial rates are payable in two halves (or moieties), the relevant legislation provides that it is the person in occupation on the date of the striking of the rate that is liable for payment of all sums due in that year whether or not they remain in occupation of the premises for the entire year.  The rate is usually struck in the opening months of the year.

Accordingly, if a property is sold or leased during the year, a landlord or vendor should be in a position to provide evidence of discharge the rates at least up to the date on which the transaction has completed. If the landlord or vendor has discharged more of the liability than is due up to the completion date, it is usual for an apportionment of liability to take place.

Liability of subsequent occupiers
If the occupier who is primarily liable does not discharge its liability, statute provides that the next occupier of the premises can be pursued by the rate collector for the arrears. However, the rate collector cannot pursue a subsequent occupier for rates which were struck more than two years previously, for example, if the 2009 rates were struck in February 2009, a subsequent occupier cannot be pursued for them beyond February 2011.  As stated above, however, it would be imprudent for a new occupier to take possession of a premises without evidence that there is no potential liability for arrears of rates.

Liability of landlords
There is no basis for this in law for a local authority to pursue a property owner for unpaid rates for which its tenant was liable where that owner does not become the occupier of the premises.
However, as no new tenant is likely to  take a lease and occupy premises where there are arrears, a property owner may have little choice but to discharge same. If a property is vacant following the departure of a tenant the owner of a property will become liable for the commercial rates from the date upon which the next rate is struck whether or not it is in physical occupation of the property.  Once an owner has discharged the liability, it can, however, make an application for a refund for each month that the property is vacant.  This application must set out that the property was being actively marketed and the owner was unable to secure a tenant or else that refurbishment works were being carried out.

Liability of receivers
If the property is vacant, the receiver appointed to same will face the same issues as an owner in trying to secure a new tenant or purchaser where there are arrears of rates.  Any prudent potential purchaser or tenant will seek evidence that rates for the preceding two years have been discharged.  As a Receiver is an expressly authorised agent of a borrower, if the Receiver is in occupation of the property on behalf of the borrower on the date the rate is struck, the borrower will continue to be liable for the rates.  If a borrower subsequently goes into liquidation, the rates from the date of the appointment of the liquidator become an expense of the liquidation.

Liability of Liquidators:

Is the local authority a preferential creditor?
In a liquidation of a company, commercial rates due on its properties, which became ‘due and payable’ in the 12 months before the date of the appointment of the liquidator to the company, are treated as a preferential debt.  Commercial rates made more than 12 months before Liquidation have status of ordinary creditor. If the liquidator physically occupies the premises, rates from date of liquidation until he departs are treated as an expense of the liquidation.  If the liquidator does not occupy a property, the rates for the current year are treated a preferential creditor, rather than a cost of the liquidation. 

Can unpaid rates attach as a charge to a property?
Unlike unpaid water rates and the NPPR charges commercial rates currently do not attach to a property as a charge.  However, it is likely that the proposed new act to consolidate rates legislation, (which has been under discussion for several years but is stalled for the time being), will include provisions whereby unpaid commercial rates are capable of attaching as a charge.  In addition to consolidation of the existing legislation, the proposed new legislation has provision for payment by instalment, penalties for late payments and removal of the subsequent occupier liability.