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Who is liable for Local Property Tax (LPT) in respect of properties leased to local authorities for terms of 25 years under the template lease?


Thursday, March 25, 2021

Investors have to factor in liabilities such as structural repairs, insurance cost and LPT when embarking on the leasing of properties for 25 years to local authorities as such costs impact on yields. The Department of Housing, Planning and Local Government through the Housing Agency engaged with investors and other stakeholders to agree a form of template lease (Template Lease) that would satisfy investors and their funders thus ensuring that investment in properties for social housing would meet investment criteria. One of the areas of focus was the term of the lease and the costs to be borne by the respective parties to include LPT.

The liability for LPT is governed by the provisions of the Finance (Local Property Tax) Act 2012 as amended  (the “2102 Act”).  Under Section 11(1) of the Act the liable person is defined as a person who holds any estate, interest or right in a relevant residential property entitling the person to:

(a) the immediate possession of such property for a period that may equal or exceed 20 years, or

(b) the receipt of rents or profits of such property for a period that may equal or exceed 20 years.

However, while S. 11 (a) seems to assist – 11 (b) refers to a party in receipt of the rents or profits for a period equal or greater than 20 years as a liable person, which suggests that a Lessor/Landlord under a lease for over 20 years is liable.

The Template Lease strikes a balance and removes all doubt by way of a contractual obligation which provides that where a liability for LPT arises for the Lessee (the Local Authority) it is passed back to the Lessor.

Covenant [6.11] of the Template Lease provides:

The Lessor shall be responsible for all taxes (including VAT), Local Property Tax, assessments, charges, impositions and outgoings other than utility bills in respect of the Property. Where the Lessee is the liable person under the Finance (Local Property Tax) Act 2012 (as amended) the Lessor shall upon notification of the liability from the Lessee promptly pay and discharge to the Lessee an amount equivalent to the Local Property Tax levied on the Property…

The cost saving for the Lessor/Landlord if the Lessee (Local Authority) assumes liability for LPT and charges it back to the Lessor.

Section 6 of the 2012 Act provides for the calculation of the LPT when the liability falls upon a Local Authority:

(6) Where –

(a) a local authority, or

(b) as the case may be, a body standing approved for the purposes of section 6 of the Housing (Miscellaneous Provisions) Act 1992, is a liable person in relation to a relevant residential property, the chargeable value of the property shall be deemed to fall into the first valuation band in column (1) of the Table to this section in relation to the valuation date 1 May 2013.

The valuation bands are fixed by the Revenue Commissioners and there are currently 19 bands starting at Band 1 properties with a value up to €100,000 which gives rise to an LPT charge of €90 per annum. As an example, property with a market value between €200k – 250k (band 4) will incur an LPT liability of €405 per annum.

Having the Lessee (Local Authority) assume the LTP liability under the Template Lease and then charge it back at band 1 to the Lessor results in a saving of €315 per annum for the Lessor on a property falling within band 4 with the saving increasing at higher bands.

Are there any exemptions to liability for LPT?

Under the 2012 Act there is an exemption from LPT for charities and bodies providing housing to meet special needs accommodation. Section 7 of the 2012 Act states:

(1) In this section [and section 7A]7 “charity” means a body of persons or a trust established for charitable purposes only and which has been granted an exemption under section 207 or 208 of the Act of 1997 or given a notice of determination under section 208A of the Act of 1997, as the case may be.

(2) A residential property shall not, for the purposes of this Act, be regarded as a relevant residential property where—

(a) the liable person in relation to the property is —

(i) a charity, or

(ii) a body established by statute, and

(b) the property is used solely or primarily to provide special needs accommodation.

 (3) In this section “special needs accommodation” means accommodation provided to persons who by reason of old age, physical or mental disability or other cause require special accommodation and support to enable them to live in the community.

 

For further information in relation to this article, please contact Thomas O’Malley.

Article written with the assistance of Harry O’Malley.


Author

Thomas O’Malley

PARTNER


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