Sales of land by mortgagees in possession are granted certain land tax payment concessions (set out below) by the Office of State Revenue (OSR). The OSR has traditionally extended those concessions to sales of land by receivers and managers, and liquidators. This is no longer the case.
Landowners’ liability to pay land tax
Owners of land are liable to pay land tax. If land tax remains unpaid, the OSR is entitled to lodge a memorial over the title of any and all land owned by that owner. The unpaid land tax is a first charge upon the owners’ aggregate land holdings and the memorial prohibits the registration of any instrument affecting the land, including relevant transfers of land ownership, without the Commissioner of the OSR’s consent.
Mortgagees in possession – Revenue Ruling LT 1.1
The effect of an owner’s liability for unpaid land tax on a sale of land by a mortgagee in possession, absent any concession, is that the mortgagee would be prevented from effecting its mortgagee sale unless it pays all land tax owing by that mortgagor to the OSR. The land tax payable would extend to land tax owing not only on the mortgaged land but to any other land registered in the name of the mortgagor, even if that land was not mortgaged to the mortgagee, or at all. The effect of the OSR’s priority charge could thus be to collect all sale proceeds to the detriment of the mortgagee, leaving the mortgagee potentially unsecured for any shortfall.
Fortunately then, the OSR has granted mortgagees the below concessions in the circumstances described:
if land is sold by a mortgagee in possession; and
the sale proceeds will be insufficient to meet both the amount owing under the mortgage and the mortgagor’s total land tax liability to the OSR, then the Commissioner of the OSR’s consent will be given to the registration of a transfer of the mortgaged land being sold.
This is provided that:
the mortgagee seeking the concession (and exercising the power of sale) is the first registered mortgagee;
payment is made to the OSR on the proportion of the total land tax arrears owing by the mortgagor which is subject to the first mortgage, and being sold;
after payment of the first mortgagee’s secured amount, before payment is made to any second or later ranking mortgagee, a similarly calculated proportionate payment is made to the OSR for land, the subject of that mortgagee’s mortgage; and
after payment of the subsequent mortgagees’ secured amounts, any remaining sale proceeds are to be remitted to the OSR to meet the owner’s remaining land tax liability before any amounts are refunded to the owner.
These mortgagee concessions have historically been applied by the OSR for receiver and manager or liquidator sales of land. Recent advice from the OSR is that it will no longer extend the concession granted by Revenue Ruling LT 1.1¹ to sales of land by receivers and managers or liquidators. Indeed, our experience on a recent transaction supports that approach.
Lavan Legal comment
The basis for the OSR’s change in approach has not been stated; it may reflect the legal status that receivers and managers usually occupy (whether appointed to a corporate mortgagor or an individual mortgagor) and which liquidators always occupy as agents of that mortgagor, rather than of the mortgagee. We are seeking the OSR’s clarification in this regard as well as further information in relation to the Commissioner’s intended approach in the future.
The effect of the change in approach has the potential to significantly impact on a receiver and manager’s or liquidator’s ability to collect surplus sale proceeds. Such considerations will need to be borne in mind when determining appointment strategy.