Applying for a Refund
In recent years the government has sought to reduce the tax burden both on the individual and on businesses. In turn, this provides an incentive to companies to develop, expand and employ, and for employees to work. However, one area of business taxation has been neglected, an area in which, over the past 12 years, there has been an increase averaging more than twice the rate of inflation: the municipal/commercial rates on commercial properties in Dublin.
Since the abolition of domestic rates in 1978 and a successful Supreme Court challenge to the payment of rates on agricultural land in 1984, business is the only sector that pays rates on its property to local authorities. Businesses must also pay for water and for the disposal of commercial waste. Further charges are levied in relation to planning permission for the provision of parking, and for connection to water and sewage schemes. Domestic users of water and sewage disposal facilities were relieved of their obligation to pay directly in 1997.
Each local authority in Ireland charges its respective commercial rates, which are governed by the valuations legislation. There is no guarantee as to what levels of increase can be expected from year to year. For example, in 2000 nine of 34 county councils and county borough corporations, along with all five town corporations and all but seven of the 49 urban district councils, increased their rates by at least 4%.
In general, rates are a tax levied on fixed property. They are not a charge for specific services rendered. The kinds of property which may be assessed for rates includes buildings, land, railways, tolls, shops and factories. In Dublin city there are approximately 24,000 properties on which rates are levied. The rate in the pound for 2001 was I£43.99. Income from rates represents 40% of Dublin Corporation's total income.
Section 71(1) of the Local Government (Dublin) Act 1930 provides as follows:
"Where hereditament or tenement which is not a small dwelling within the meaning of the Local Government (Rates and Small Dwellings) Act 1928 (No 4 of 1928) as amended by this act is unoccupied at the making municipal rate, that rate shall be made upon the person (hereinafter referred to as the owner), who is for the time being entitled to occupy such hereditament or tenement, and upon such rate being paid by such owner, such owner shall be entitled to claim and receive from the corporation a refund of one-twenty fourth of such rate in respect of every completed month (reckoned from any day of one month to the corresponding day of the next month) during which such hereditament or tenement is unoccupied either for the purpose of the execution of additions, alterations or repairs thereto, or because such owner is bona fide unable to obtain a suitable tenant therefore, in the case of hereditament or tenement to which the increase of Rent and Mortgage Interest (Restrictions) Acts 1923 to 1930, for the time being apply, at the maximum rent for the time being (permitted under those acts, or, in the case of say other hereditament or tenement at a reasonable rent)."
Generally, the person liable for rates is the person in occupation of rateable property at the date of the making of the rate. In addition, where the person who is liable for rates defaults on payment, a subsequent occupier can be held liable for two years of rates arrears owed by the previous occupier. Commercial rates liability is assessed by multiplying the rateable valuation of the property by the rate in the pound. The rate in the pound is fixed for each year by the city council. Rateable valuations are determined by the Valuation Office, which is independent of local authorities.
All fixed property is currently valued for rating purposes, but only certain commercial premises are subject to actually paying rates. Certain business properties, such as unregistered guesthouses and government agencies, are not currently subject to rates. The core legislation governing valuation was introduced in the middle of the 19th century, with acts in 1852, 1854, 1860 and 1864. Since then there have been various adoptions under local government law to reflect the establishment of county councils and other institutional changes, and two unlimited acts were passed in 1986 and 1988.
The valuation is based on an estimate of the likely rent for which a property would be let to a hypothetical tenant on an annual basis. The rate in the pound, as determined annually by the local authority, is applied to the valuation on the property and the rates bill is then determined. The system of determining a valuation is quite complex. In simple terms it involves a valuer examining the rental value of the property, estimating what it would have been in 1988 (the time of the last act) and multiplying by a standard figure to work out the value in the 1850s. If the property has improved, the valuation is likely to increase and so too will the rates bill for the business operating from the premises.
Section 71(1), as mentioned above, allows the owner of a rateable property in Dublin to apply for a refund from the corporation where the premises in Dublin has been wholly empty and unoccupied for any one of the following reasons:
- The premises is under repair or alteration during the entire period of the claim. It is advised that a certificate of contractor/architect or engineer giving dates on which repairs were commenced and completed, or other proof of execution of repairs (eg, receipts for materials used), be attached;
- The premises is held pending demolition or redevelopment. It is suggested that a certificate of contractor/architect or engineer giving relevant dates be attached; or
- The premises is for letting during this whole period of claim, but the registered owner is genuinely unable to obtain a suitable tenant at a reasonable rate. It is suggested that confirmation of evidence to let (eg, letter from selling agent giving exact dates or receipts for advertisements in newspapers) be attached. The rent sought during the vacancy must also be stated.
To avail of this refund on account of vacancy from the corporation, the requisite application form/declaration must be completed. This consists of a statutory declaration to be sworn by the applicant/declarant, or any other person having the authority on behalf of the registered owner to make the application/declaration. All parts of the application/declaration must be fully completed and rate receipts for the relevant periods attached.
Although the above criteria are clear and concise in their meaning, the fact remains that they provide only for refund of rates on account of vacancy where the premises is under repair/alteration during the entire period or is held vacant pending demolition or redevelopment, or where the premises is for letting and the owner is genuinely unable to obtain a suitable tenant at a reasonable rent. In practice, however, these criteria are limited and need to be broadened, particularly to incorporate the situation outlined in the case study below, where a premises remains vacant during a certain period because the registered owner genuinely cannot find a suitable purchaser. At present this is a grey area and only the corporation has the discretion to grant a refund (if any) in this situation.
Consider the example of a financial institution which had repossessed a property. The property had been vacant for some considerable time because the registered owner of the property genuinely could not find a suitable purchaser, and because, as is usual with financial institutions, this particular institution refrains from entering into lettings of repossessed properties as a matter of policy. Such policies are adopted as the existence of a letting agreement in these cases can cause significant delays to the securing of a purchaser and the closing of a sale, and can hinder the selling agent's efforts to show the property. As a result, the commercial rates gradually mounted up to an exorbitant sum because the institution was genuinely unable to find a suitable purchaser.
In this particular case certain factors had to be considered, particularly the location of the property. At one point the property was vandalized, and some interested parties who viewed the property alleged intimidation from locals, which understandably led many respective purchasers to withdraw from, or fail to make, offers on the property.
In the circumstances outlined above the financial institution was unable to avail of the rate refund scheme for vacancy as the criteria set out in Section 71(1) were too narrow. It is arguably time for Section 71(1) to be amended to extend the accepted reasons for vacancy so as to allow for a refund in the case of a registered owner that is genuinely unable to obtain a suitable purchaser for a rateable property in Dublin. In the meantime, financial institutions that repossess houses in Dublin from original purchasers on account of mortgage arrears may well end up selling on the properties at a loss, since the rates will continue to accrue for the period spent searching for a new buyer.
In light of the current economic climate and forecasts of a two-year recession, many financial entities may find themselves in this situation in the coming months and years. The rates issue must thus be dealt with by Dublin Corporation, and indeed by the government in the long term. For the time being, however, financial entities that have repossessed properties and that wish to sell them on must undertake to discharge all monies due in respect of municipal rates to Dublin Corporation, so that the new purchaser of the commercial premises has a free and unencumbered title to same.
For further information on this topic please contact Paul Eustace at Dillon Eustace by telephone (+353 1 6670022) or by fax (+353 1 6670042) or by email ([email protected]).