Unpaid rates is an issue for all Councils, and will no doubt become a more significant issue during this era of rates capping. This is a brief discussion on the complexities seen in this area and is divided into two parts, with the second part discussing deceased estates.
Section 181 of the Local Government Act 1989 (the Act) provides an avenue for Councils to sell land to recover unpaid rates or charges, providing:
- there are more than 3 years rates outstanding;
- no current payment arrangement exists; and
- the Council has a Court order requirement payment of the amount.
Once points 1 and 2 are met, civil proceedings are initiated in the Magistrates’ Court to recover the debt and a Court order for debt is obtained (Judgment Order).
In order to sell the land, Council must obtain a valuation of the property and serve notices on any person who has an interest in the land in accordance with the Act. If the land is to be sold at auction, further notices need to be issued in accordance with the Act.
The Act provides that Council may recover all expenses associated with the enforcement, including interest, which can all be deducted from the proceeds of the sale, prior to distribution of the funds from the sale to each person who has an interest in the land.
While this may appear, on the face of it, a straight forward process, there are complexities if the land is occupied or if the land belongs to a deceased estate, and these issues will be considered below.
An Occupied Property
Sale of property for rates arrears usually involves vacant land, or if there is a dwelling on the property, a vacant dwelling. A sale or transfer is problematic in a case where a person is residing, lawfully or unlawfully, at the property and will not vacate for the rates sale. The Act does not provide any capacity for Council to obtain vacant possession prior to the auction or transfer.
In such a case alternative enforcement measures may be required after obtaining the Judgment Order.
Assuming that the debt involves an individual, if the Judgment Order is for an amount of $5,000 or more bankruptcy proceedings can be initiated against the owner. The trustee in bankruptcy does have powers to obtain vacant possession of property in order to realise assets on behalf of the bankrupt estate and while this itself can be a slow process, it shifts the burden away from Council.
There are also other alternative measures available to enforce a Judgment Order, including summons for oral examination, attachment of earnings order, instalment orders or warrants to seize property. Generally the most appropriate enforcement measure is to issue a bankruptcy notice, as the only apparent asset is the real property, the subject of the rates arrears, though each case is different and the appropriate option considered in light of the individual circumstances.
In the case of a property that is a rental property, section 177 of the Act makes it is possible for Councils to require the occupier of the land to pay the rent directly to Council. This would usually be considered prior to the section 181 process commencing.
While sale of properties to recover rates appears to be straight forward process, there may be numerous issues that make any individual matter quite complex. Part 2 will discuss the implications of a deceased estate.
If you wish to discuss how we can help your Council with rates recovery, please contact Kirsten Hughes or Matt Barkla on 5445 3333.
Written by Kirsten Hughes, Solicitor at Beck Legal.