Commercial rates update
In the practice note published in the August/September 2014 Gazette concerning of the Local Government Reform Act 2014, the committee had indicated that, having regard to the provisions of section 32(4), the key consideration for a landlord in avoiding a potential charge of up to two years arrears of rates on an assignment or subletting by the tenant was ensuring that the tenant was not in arrears. This remains the position.
However, having considered various submissions from practitioners, the committee also agrees that the charge under section 32(4) can be avoided so long as notice of the assignment or subletting has been given within the two-week period following the assignment or subletting. This is because section 32(4) provides that the charge will apply where the landlord has not given notice of the assignment or subletting and where there are unpaid arrears of rates. Accordingly, there must be an issue under both limbs if the charge is to apply. Therefore, service of the requisite notice would appear to take the landlord's interest in the property outside of the application of section 32(4). Consequently, while landlords should be advised as a matter of good practice to make it a condition of consent to assignment or subletting that there is a discharge of arrears, landlords can protect themselves in any event by ensuring that the requisite notice is served.
The committee has also received a number of queries from practitioners on the issue of the liability of landlords for the unpaid rates of their tenants where the tenant has surrendered the property. While the committee is not in a position to comment on matters of law (and therefore practitioners should consider this matter themselves), it would appear that under the 2014 act, the landlord, as subsequent occupier, no longer has liability for any arrears following a surrender. However, notwithstanding this, it would also appear to be the position under section 32(4) that, unless notice is given by the landlord within two weeks of the transfer to the landlord of the property, then up to two years of any unpaid rates will be a charge on the landlord's interest, even if the arrears are subsequently paid.
Practitioners should note that the legislation does not clarify what is meant by ‘transferred’. Again, the committee is not in a position to comment on matters of law, so it is suggested that, until there is clarity on this matter, it would be preferable to take a conservative view and apply a wider interpretation to ‘transferred’ as including all circumstances (and not just surrenders) in which the landlord obtains possession of the property, including on lease expiry, the exercise of a break option, or forfeiture.
The foregoing is a change to the previous position at law that landlords were automatically liable for up to two years’ arrears as subsequent occupiers. The relevant statutory provisions that governed this have now been repealed by the 2014 act. This change now enables a landlord to avoid liability for the unpaid rates of its tenants, providing that the landlord has served the requisite notice.
The committee recognises that there may be circumstances in which it is not clear as to whether a ‘transfer’ of the property has occurred or as to the date on which a transfer has occurred (whether on assignment or the property being vacated) and consequently by what date the notice needed to be served. Therefore, where there are unpaid arrears, there may be the potential in some cases for dispute with the local authority as to whether or not a charge has arisen. The committee will keep these matters under review.
The committee also notes that various local authorities are requiring that notifications under section 32 be made in a specified form. Some of these forms look for certain commitments and contain certain warranties. Given that there does not appear to be any basis under the legislation for these requirements, the committee intends to take the matter up with the Local Government Management Agency. In the meantime, the committee is of the view that notification by letter is equally permissible, and recommends that the client’s notification by letter under section 32 should not be delayed in circumstances where clients are unable to complete the detail in the required form.