Before 1 October 2011 empty domestic properties were not liable for rates (the equivalent of council tax), and lenders would not have received a bill or demand. However, full liability for empty domestic properties was realised by new legislation which took effect from 31 October 2011.
Since the introduction of this legislation it has been common practice for a large number of lenders to have met the rate payments after a property has been sold by calculating the rates due on the day of completion. This is then deducted from the sale proceeds for onward payment to Land & Property Services (L&PS), who are responsible for collecting the sums. However, L&PS has confirmed to the Council of Mortgage Lenders that this approach will no longer be acceptable.
What is the new process?
Once a lender comes into possession of premises they should ensure that their solicitors notify L&PS. This is so that the previous account in the name of the borrower can be closed and a new account in the name of the lender can be opened, with liability running from the date of possession. The lender will be billed for the remainder of the year's rates and this invoice is payable immediately. L&PS will give 40 days (or seven days after a missed instalment) before they issue a final demand, giving a final 10 days to pay.
However if a mortgagee in possession contacts L&PS they can agree to pay the invoice no later than 31 October in that rating year.
For properties where lenders are in possession after 31 October until 31 March there is no option to postpone payment. If a lender remains in possession of a property on 1 April they will be issued with a start of year rates bill and can then seek the extension for payment until 31 October of that rating year.
Once the sale of the property completes lenders must then request a refund of any over paid rates for that year.
What does this mean for lenders in Northern Ireland?
At present, we do not know how long it will practically take L&PS to process and issue the refunds of rates payments. However, the new process will mean that there will not be an automatic finalisation of the mortgage account on the day of completion or shortly thereafter. We anticipate some delay in the issuing of refunds, potentially numerous weeks, in which time most lenders will be concerned about their inability to close down the mortgage account. The potential for delay could be increased where there is a failure by lenders to put into place processes to handle the changes and to effectively deal with the extra administration which will surround the recovery, reconciliation and allocation of the refund payments.