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Rates and Lease Arrangements


People with lease arrangements extending beyond July 1 2003 need to know about new laws on rating.

Among the changes in the Local Government (Rating) Act is a new rule about who is ultimately responsible for paying rates.

A key concept of the new law is that only whole properties are separately rated. Part of a property, such as one shop in a block of 10, will not be separately rated. Under the new law the person liable for rates is the person listed as the ratepayer on the district valuation roll – usually the owner of the whole property.

The effect of the new law on leases is to bring rating arrangements for many commercial properties in line with the usual rating arrangements for residential property.

Background

Last year, the Government completed a review of local government funding powers – and, in particular, the Rating Powers Act 1988. New legislation to replace that Act was introduced to Parliament in August 2001, and enacted in March this year. Through the new Local Government (Rating) Act 2002, the Government is seeking clarity, certainty, and stability in rating matters.

The Previous Situation
  • Under the Rating Powers Act 1988 the occupier of a separately rateable property was primarily liable for rates.
  • The occupier is defined as the owner except where a person other than the owner has a right to occupy the land by virtue of a tenancy granted for a term of not less than 12 months certain.

The Situation Under the New Local Government (Rating) Act 2002

Unit of Liability
  • From 1 July 2003 the base unit of liability will be known as the rating unit. The rating unit will be based on a certificate of title – one certificate of title equals one rating unit. For land for which no certificate of title exists, the rating unit will be based on the nearest equivalent to a title.
  • This is in line with the current situation.
  • Part of a rating unit, such as one shop in a block of ten, will not be separately rated in its own right.

Ratepayer
  • From 1 July 2003 the person who will generally be liable for rates will be the ratepayer of a rating unit. The ratepayer is the person whose name is entered into the district valuation roll and rating information database of a district, and will be typically the owner of the property.
  • The ratepayer will receive the rates bill for the rating unit.
  • There are some exceptions to the general principle that the owner is the ratepayer. The exceptions apply only to rating units – they do not apply to parts of a rating unit such as one shop in a block of ten, or one floor of a multi-storey building.
  • The main exception relates to certain categories of leases. The first category are leases where:
- The lease is registered under section 115 of the Land Transfer Act 1952; and
- The lease is for ten years or more (including renewals); and
- The lease provides for the lessee to be entered as the ratepayer of the rating unit.
    • The second exception is more of a transitional provision to recognise that leases and the like are contracts, and generally can only be renegotiated as they come up for renewal. This condition applies where a lessee is:
    - Entered on the current District Valuation Roll as an “occupier” of the separately rateable property that substantially corresponds to the rating unit entered on the rating information database; and
    - Party to a lease or licence that was signed before 8 August 2001 This was the date on which the Bill was introduced into Parliament.; and remains in force; and
    - Party to a lease that either precludes the renegotiation of rent that would allow the owner be reimbursed for rates if they were liable or is a lease registered under section 115 of the Land Transfer Act 1951.
      • A lessee includes a sub-lessee.
      • Another exception is that in some circumstances people actually using Maori freehold land are liable for rates on that land.
      • This Act does not prevent owners and tenants from contracting between themselves as to who actually pays the rates (just as the RPA does not prevent this currently). However the local authority is obligated to send the rates assessment and rates invoices to the person who is identified on the rating information database as the ratepayer. The final responsibility for ensuring that the rates are paid lies with the ratepayer and it is that person to whom local authorities have recourse in the event that the rates are not paid.

      What Should People Do Now
      • The Act makes significant changes to the liability for the payment of rates.
      • Ratepayers should:

      Where they have a lease on a rating unit:
      - Check the terms of that lease;
      - Consult the Local Government (Rating) Act 2002 and seek competent legal advice as to the application of the Act to their circumstances;
      - Begin discussing the implications of the Act with the owners of the rating unit.

      Where they are the owner of a rating unit:
      - Consult the Local Government (Rating) Act 2002 and seek competent legal advice as to the application of the Act to their circumstances;
      - Begin discussing the implications of the Act with the any lessees of the rating unit.

      When Are These Changes to Come into Effect?

      - As far as they relate to the district valuation roll, came into force with the Royal Assent, but only for the purposes of constructing the district valuation roll for a financial year that begins on or after 1 July 2003;
      - As far as they relate to the rating information database, come into force on 30 April 2003.

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      Last updated: 13/05/2005