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March 2003

Rates, Leases and Timeshares

The Worm Turns

Landlords and owners of property will soon have additional paper to shuffle when the Local Government (Rates) Act 2002 comes into force on July 1 2003.

Currently, under the Rating Powers Act 1988 occupiers of separately rateable properties are liable to pay the rates for the property they occupy. That means an occupier is often treated as the owner of the land.

All this is about to change:-
Under the new Act the main liability for rates will reside with the owner rather than the occupier.

For the record, the base unit of liability will be called a rating unit. It’s very simple now (that’s a surprise!). A rating unit “equals” one Title for a piece of land. It is envisaged that this will allow Councils to set a consistent annual general charge for each part of the rating unit, resulting in a uniform whole. It seems that while the rating treatment may be different for various parts of the rating unit, the whole of the rating unit liability (together with the demand) will be sheeted home to the owner.

But What Does It Mean?

Let’s link this new development to a common scenario. A landlord is the owner of a block of 10 shops on one Title. Currently, the tenant of each of the ten commercial premises would receive a separate rates demand from the local Council. However, from July 1 next year the landlord will receive one rates demand for the whole block and will be responsible for payment of the rates. Each tenant’s portion will be calculated and invoiced by the landlord.

There are some exceptions (as always) which relate mainly either to the transition phase, long formal lease arrangements or leases registered under the Land Transfer Act.

Effects Of Change

The new legislation, especially in respect of the rating arrangements for commercial leases, is intended to bring the majority of those leases into line with the way residential property is rated.

It’s a new song, but an old tune. (Local) government does not want to be burdened with collection work.

It does not stop there. There will be more compliance requirements. No doubt Councils will be in contact with all ratepayers shortly to ensure that the owners of the rating units, (or the occupiers of the rating units in respect of the exceptions), are correctly noted in their records.

Owners and occupiers should be communicating about the implications and discussing the practical changes required. Those involved should check the terms (including renewals) of all leases, know the exceptions and whether they apply.

A major anomaly which will need to be addressed relates to timeshares where there may be a title for each timeshare week – potentially 52 titles per unit. Will we see 52 rates demands per unit each levying the owner for the annual uniform charge? If you own a timeshare we suggest that you lobby your local MP seeking urgent amendment to the legislation.