If you have bought or sold a property in the last few years, then you may have had a conversation with your Solicitor about postponed rates. If not, you probably haven’t heard of them.
The truth is postponed rates are not generally well understood, but there are consequences if they are not dealt with appropriately during a sale or purchase of property.
So what are postponed rates?
Postponed rates are a charge that Councils can levy over property.
Where you have land that is zoned commercial, industrial, residential flat building or it is permitted under a plan to be further subdivided, this land attracts higher Council rates. If you use the land for residential purposes only, you may apply to have part of these rates postponed, and essentially pay the residential rate for the land. The part you can apply to be postponed, is the difference between the residential rate and the higher commercial/ industrial/ other rate.
If the postponement is granted, Council will defer payment of the difference between the two rates for each year plus interest, and will continue to defer the difference every subsequent year for a period of five (5) years. This amount is what is known as postponed rates.
These rates are on a 5 year cycle, so that when Council levies the new year’s rates and interest, the previous 5th years postponed rates drops off. This means that there is a maximum of five (5) years’ worth of postponed rates which are levied against the property.
For example, Jo owns a block of commercially zoned land. Jo advises Council that the land will only be used for residential purposes and applies to Council to have the difference between the commercial rates and the residential amount postponed. If approved, Council will postpone part of that years rates and will continue to do so for five (5) years, so essentially Jo will pay only the residential amount of rates instead of the commercial amount as the balance has been postponed. Jo will have to pay the deferred rates when he no longer solely uses the property for residential reasons.
Postponed rates are not generally due and payable, unless the land use changes back to commercial, industrial etc.
When a property is sold with postponed rates levied against it, this becomes a bit of an issue. Is the Vendor liable to pay these rates that aren’t due? Should the purchaser have to take on the potential liability for them?
Legislation determines that postponed rates are a charge against the land, much like a mortgage and must be discharged (by making payment to Council). Alternatively, case law suggests that an alternative to payment to Council is that an amount equal to the postponed rates is retained in a Trust account for the benefit of the Purchaser for a period of 5 years. If Council deems that the rates are due and payable in this 5 year period, then the money held in trust is used to make payment to Council. If the postponed rates are not levied in the 5 year period, then the money is returned to the Vendor. Alternatively there may be options to create a special condition in the contract which outlines what is required in the event of postponed rates applying to a property.
It is important that you receive the right advice and address the issue of postponed rates upfront as the consequences could be costly.
At Everingham Solomons we have an Accredited Property Law specialist on hand to deal with complex property matters because Helping You is Our Business.
Click here for more information on Sarah Rayner.