The Local Government Bill fundamentally changes the liability for rates - from occupier to owner.

The Government recently introduced the Bill into Parliament - the end product of the funding powers reform for local bodies. The purpose of the Bill was to modernise and simplify the rating processes for local government and to give local bodies more flexibility with rating matters but while many of the technical changes will only be of interest to local body politicians and officers, one relatively simple change has major ramifications for property owners.

New owner liability
Currently under the Rating Powers Act 1988, the person primarily liable for rates is the 'occupier'. This is defined to be the tenant (if the lease is for a fixed term of 12 months or more) or, if there is no long term tenant, the owner. If the occupier fails to pay the rates, then the local authority can then require any of the following people pay the outstanding rates:
- the owner (if the owner is not already deemed to be the occupier)
- the mortgagee
- any other person with an interest in the property
- the person actually in occupation of the land.

Under the new Bill, the person primarily liable for rates will be the owner. The tenant will no longer liable for rates. Mortgagees and other people with interests in the property will no longer be obliged to pay outstanding rates but may do so if they wish.

The Bill also contains a transitional regime. Where a lease was entered before 8 August 2001, and precludes the renegotiation of rent (to allow the owner to be reimbursed if the owner was directly liable to pay the rates), then the existing regime of occupier liability applies until the rent can be renegotiated or the lease expires.

Effect of change
With simple cases of ownership the new regime will be straightforward - the registered owner on the certificate of title will be liable. There remains a question mark, however, about how this definition will be applied in more complex cases.

While at first glance the change may not seem that significant (property owners were always ultimately liable for rates under the Rating Powers Act 1988 and leases undoubtedly required the tenant to pay all rates), the change to primary liability still has significant consequences.

Instead of only needing to be concerned about rates if the tenant defaults (and if the local authority decides to call on the property owner), the property owner will bear primary and ultimate responsibility. All rates assessments and the new rates invoices will be delivered to the property owner as ratepayer, rather than directly to the tenant. The property owner will need to either deliver these notices to the tenants for them to pay, or collect the rates from tenants - which in cases of multi-tenanted properties may be a significant task. The local authority will have no relationship with the tenant so the local authorities will pursue the property owner immediately if the rates are not paid. Instead of being able to recover rates paid on behalf of a tenant under the Rating Powers Act, for example, by retaining funds otherwise payable to tenant, the property owner will have to take his or her own steps to recover rates from recalcitrant tenants under the lease.

Water charges (when levied on a consumption basis like electricity) are currently the responsibility of the tenant now become 'targeted rates'. Property owners will be liable for water used despite having no ability to monitor or control use. Local authorities will no longer be able to cut off the water supply if payment is not made.

The reforms will undoubtedly lead to increased administrative costs for property owners in managing rates - all from a desire to simplify rating processes for local authorities. The Minister has however specifically flagged that she wants the Select Committee to review aspects of the Bill in the light of public submissions, particularly the change to owner liability.

Rates relief now in the hands of local bodies

Another significant change in the new Local Government (Rating) Bill is the removal of detailed rules on rates remission, postponement and relief. In particular, specific relief for farmland and developments is removed, while the provisions allowing the remission or postponement of rates in cases of financial hardship, on certain listed types of land or land affected by natural calamities, have been removed.

Instead, local authorities may adopt rates remission and postponement policies as part of the annual planning process. While the public must be consulted about these policies, local authorities will have a very wide discretion about whether to adopt such policies, and if so, the terms of any policy. There are no guarantees local authorities will continue the existing relief.

Key changes