The Conveyancing Committee would like to draw the attention of practitioners to significant changes introduced in commercial rates legislation, which are in force since 1 January 2024.

1. The new rates provisions

The changes have been introduced by sections 1 to 22,  section 27 and the Schedule to the Local Government Rates and Other Matters Act 2019 (the 2019 Act), as amended by the Historic and Archaeological Heritage and Miscellaneous Provisions Act 2023 (the new rates provisions).

The new rates provisions are aimed at modernising the law governing commercial rates. Before the commencement of the 2019 Act, the key provisions governing commercial rates in the context of property transactions were those set out in section 32 of the Local Government Reform Act 2014 (the LGRA 2014). That section specified what rates liability needed to be discharged upon a transfer of an interest in a property and the notification that must be given to the rating authority on foot of that transfer. Section 32 also set out the circumstances in which rates arrears would attach as a charge on property, including any penalty for failure to notify the rating authority.

Section 32 has now been repealed and the new rates provisions (save for section 12 relating to the payment of interest) commenced on 6 November 2023 and 1 January 2024. Practitioners should be aware that this note is issued on an interim basis pending the publication of guidance from the Department of Housing, Local Government and Heritage.

Note: References throughout this note to ‘person’ include body corporates.

2. Summary of key provisions

Below is a summary of some key provisions:

• There are new notification requirements where there is a change in the particulars recorded in the rates database or where there is a change in the ‘liable person’.

• New criminal offences for failure to give the necessary notifications.

• Apportionment of rates as between the liable person and any subsequent liable person where the liable person changes during the year and rates have not yet been fully paid for the year.

• There is an obligation on a liable person to pay any outstanding rates levied under the 2019 Act and owing by them before completion of the sale of a property (and an associated criminal offence for failure to do so).

• There will be no limitation on how long a property remains charged with unpaid rates (and any interest) owing by an owner, but such a charge will cease to apply upon a sale of the property where the ‘owner’ changes.

• Interest on unpaid rates will be payable at the daily rate of 0.0219% (c. 8% per annum).

• Local authorities may determine the abatement they will grant in respect of vacant premises but the Minister for Housing, Local Government and Heritage may prescribe the maximum abatement allowed. Regulations are awaited.

3. Some key terms

3.1 ‘Relevant property’

The new rates provisions apply to ‘relevant property’. ‘Relevant property’ is defined in the 2019 Act as having the same meaning set out in the Valuation Act 2001. Schedule 3 of the 2001 Act sets out what constitutes ‘relevant property’.

It should be noted that a property may be considered a ‘relevant property’ even if it is not rated or rateable and therefore there may now be an obligation to give notice to the local authority upon a sale, lease etc, for these properties. The committee is liaising with the Department in this regard since it is believed that this is an unintended consequence of the drafting of the legislation.

3.2 ‘Liable person’

The legislation introduces a new definition of ‘liable person’ being the person in occupation or entitled to occupy (if the property is unoccupied) on the first day of the local financial year i.e. 1 January.

4. New notice requirements

4.1 Change in the particulars on the rates database

Local authorities are obliged to maintain rates databases. The database must include (a) the name of the occupier (b) if unoccupied, the name of the person entitled to occupy (c) the address of the property (d) any unique reference number assigned to the property (e) nature of the business at the property (f) any other information in relation to the property considered appropriate by the local authority.

There is a new requirement for a liable person to notify the local authority within 10 working days of becoming aware of any change in the particulars on the rates database relating to that liable person or the property. Failure to do so, without reasonable excuse, is a criminal offence.

It is unclear as yet whether the rates database will be publicly available and/or accessible by liable persons.

As part of a relevant transaction practitioners should advise clients of their ongoing obligations to notify in good time the local authority if they become aware of any change in the particulars on the rates database.

4.2 Change in the liable person

The new rates provisions have also introduced a new notice requirement where there is a change in the liable person.

 Where:

• a person ceases to be a liable person;

• a person becomes the liable person;

• the liable person moves from being an occupier to the person entitled to occupy (e.g. where the owner vacates the property and it is unlet); or

• the liable person moves from being the person entitled to occupy (e.g. the owner where the property is vacant) to the person in occupation;

such person must notify the local authority within 10 working days of such change.

In many instances, there will now be a dual notification requirement for a vendor and a purchaser, landlord and tenant etc. This increases the administrative burden of the parties to these (and some other) transactions.

The following are some examples of when notification must be given (this list is not intended to be exhaustive):

There is no need to serve notice if a transaction does not result in a change in the liable person, for example:

• in the sale of a fully let property;

• a refinance or share purchase agreement; or

• a renewal lease.

The legislation allows for a representative of a liable person, with written authority, to serve the notice. Practitioners may prefer that their clients serve such notice. Failure to comply with the notification requirements is a criminal offence.

5. Payment of rates before a sale

A liable person who proposes to sell a relevant property now must before completion of the sale, pay any rates imposed under the 2019 Act i.e. since 1 January 2024, together with any accrued interest, owing by that liable person for the period up to and including the day immediately before completion.

A local authority must provide a rates statement showing the rates owing as of the date of expected completion within 10 working days of a request for such statement.  This may make it difficult to complete a sale any earlier than 10 working days from the Date of Sale unless the entire year’s rates have been paid up to date, where this is possible.

If rates have been paid by a liable person for the rates year, the usual approach to apportionment of rates under the contract for sale/lease should continue to apply.

The definition of ‘liable person’ in the 2019 Act could be interpreted to mean that the liable person cannot change during the course of a rates year even when a property is sold or let during a rates year. As such, where rates have not yet been paid for the full year, a prudent approach for the outgoing liable person may be for them to pay the rates for the full year and to apportion on completion such that the incoming liable person refunds them the rates amount for the rest of the rates year. At a minimum, the outgoing liable person must pay the amount due by it to the local authority for the period up to the date of completion. In accordance with the legislation, this must be paid to the local authority before completion of the sale (not afterwards out of the proceeds of sale. It is a criminal offence to fail to comply with these payment obligations.

It is not clear what constitutes a ‘sale’ within the meaning of the relevant provision (section 13 of the 2019 Act). Pending clarification, a prudent approach may be to treat it as including a lease, sub-lease, assignment, surrender etc.

Any outstanding rates levied under the old legislation would not have to be paid before completion of the sale. This does not mean, however, that the liable party is absolved of liability for those rates. The local authority can still pursue them for the arrears.

6. Any pre-existing charge under section 32 of the LGRA 2014

Although section 32 of the LGRA 2014 has been repealed by the new rates provisions, any penalties that previously arose under that section will continue to apply indefinitely until discharged or for a period of 12 years as against a purchaser in good faith for full consideration or as against mortgagees.

This means that practitioners should continue to enquire as to the position under section 32 of the LGRA 2014, in addition to making enquiries under the 2019 Act. The committee is considering changes to the Law Society Requisitions on Title to reflect the new rates provisions.

7. Arrears of rates as a charge on property under the new rates provisions

Any rates levied under the 2019 Act (together with any interest) due and unpaid by an ‘owner’ (as defined in the legislation) will be a charge on property. Such a charge will remain indefinitely until discharged but will cease to apply once the property is sold in circumstances where the liable person who accrued the rates in question ceases to be the owner of the property.

Unfortunately, the legislation does not include a definition of ‘sold’ so there is some lack of clarity over what ‘sold’ includes. The transaction in question must result in the ‘owner’ changing. So, for example, in a refinance or SPA the charge would continue to apply and would not fall away.

Practitioners when acting in a purchase should ensure that they are satisfied that any charge arising under the new rates provisions will cease to apply on completion of the sale. Practitioners should not strictly insist upon provision of evidence of payment of rates imposed under the 2019 Act where any charge would cease to apply upon completion of the sale.

8. Form of notice

It has come to the attention of the Committee that certain local authorities have produced their own forms of notice. Some of the details required by these forms are not based on any statutory requirement. The Committee is not recommending that practitioners use these forms and practitioners may wish to use their own forms of notice or advise their clients to do so.