Part 5: The application process

Residential rates postponement.

5.1
In this Part, we assess councils against our expectations of:

5.2
We also discuss the need for ratepayers to notify mortgagees that they are considering postponing their rates.

What we expected

Informing ratepayers about the existence of rates postponement policies

5.3
Section 45(1)(l) of the Local Government (Rating) Act 2002 requires that rates assessments must identify whether councils have rates postponement policies. Councils that do have rates postponement policies are required to include a brief description of the criteria for rates postponement under each policy. We expected that councils would be complying with these legislative requirements.

5.4
We expected that councils would have their rates postponement policy or policies, and clear supporting information, easily available in hard copy and on their website.

5.5
Where councils have more than one residential rates postponement policy, we expected that interested ratepayers would be informed of all the policies that they might qualify for rates postponement under.

Application documentation

5.6
We expected that application documentation would capture all the necessary information for councils to make a decision about whether to grant rates postponement to the applicant.

5.7
We expected that initial application forms and other information provided to prospective applicants would accurately reflect the criteria used by the council to determine eligibility.

5.8
We expected that councils would have robust application and acceptance documentation that incorporates the detail of the rates postponement policy.

Informing applicants about the implications of rates postponement

5.9
We recognise that it is not the role of councils to act as financial advisers to ratepayers. However, as public bodies, councils may be seen as having a greater obligation to ensure that their conduct is, and can be seen to be, ethical at all times, especially when dealing with potentially vulnerable older ratepayers.

5.10
We therefore expected that, as part of the application process, councils would ensure that applicants are informed about the implications of rates postponement. In particular, we expected that councils would:

  • ensure that ratepayers are informed about the potential effect of rates postponement on their equity; and
  • advise ratepayers to seek independent advice before choosing to postpone their rates.

5.11
We expected that ratepayers who are postponing their rates would be informed of any changes to the council’s rates postponement policy that might affect them.

5.12
In Appendix 6 we have set out a list of issues that councils may need to inform ratepayers about when they apply to postpone their rates.

Application process for optional rates postponement

Informing ratepayers about the existence of rates postponement policies

5.13
The four councils offering optional rates postponement that we audited all noted their rates postponement policy or policies on their rates assessments.

5.14
Other strategies used by these councils to inform ratepayers about the optional rates postponement policies include:

  • discussion at public meetings;
  • distribution of brochures;
  • articles in council publications; and
  • information on the council website.

5.15
However, neither Gisborne District Council nor Rodney District Council had information about the rates postponement policies available on their website, except as part of their LTCCPs.

Recommendation 11
We recommend that all councils with residential rates postponement policies make the policy or policies, and clear supporting information, available both in hard copy and on their websites.

5.16
Three of the four councils we audited that offer optional rates postponement – Western Bay of Plenty, Gisborne, and Rodney District Councils – also offer postponement on the grounds of hardship. Hardship policies include conditions, such as asset testing, that are more restrictive than optional rates postponement policies. They generally have fewer costs than the consortium scheme, as they do not include the 1% management fee or the 0.25% reserve fund fee. Councils need to ensure that ratepayers who enquire about rates postponement are told about both policies, so that ratepayers can choose the most appropriate policy for their circumstances.

5.17
Each of the three councils had information available about both policies.

Application documentation

5.18
Councils with optional rates postponement policies use a standard initial application form that requires basic information from the ratepayer. Information available about the scheme notes that ratepayers need to meet the equity criteria before they will be granted rates postponement.

5.19
After establishing an applicant’s eligibility for postponement, the council sends the ratepayer a conditional offer to postpone their rates.

5.20
The council’s offer is conditional on:

  • the ratepayer getting a certificate from the decision facilitation service and providing it to the council; and
  • the ratepayer’s agreement to continue to insure the house on the property and to provide a copy of the current insurance policy.

5.21
The offer becomes unconditional when these conditions are fulfilled. Ratepayers sign and return an acceptance form to activate the postponement.

5.22
The initial application form and information available to ratepayers in most cases accurately reflects the processes councils use to determine eligibility.

5.23
However, Western Bay of Plenty District Council’s policy allows ratepayers under 65 to apply for optional rates postponement, but this is not noted in their application material or the additional documentation available.

5.24
Rodney District Council charges an annual administration fee of $50, which is not noted in the brochures available about the scheme, although ratepayers are advised of it before they apply.

Recommendation 12
We recommend that all councils offering residential rates postponement ensure that publicly available information regarding rates postponement, including the application form, accurately reflects their policies.

5.25
The letter of offer sent by the councils to each applicant refers to the “rates postponement scheme”, but does not detail the nature of the scheme nor specifically incorporate the actual terms of the scheme. Only Rodney District Council’s letter refers to the fact that various costs and fees will be payable under the scheme.

5.26
It would be preferable for the letters of offer to clarify the full terms of the agreement, and clearly identify the applicable policy. Councils may wish to include a copy of the policy with the letter of offer.

5.27
It is a condition of rates postponement that ratepayers keep their house insured. However, the application and acceptance documents do not explain the implications for the ratepayer if they fail to meet this condition in the future. The documentation also does not specify what kind of policy is required.

5.28
There is no provision made, in the policies or in the documentation sent to ratepayers, for councils to inform ratepayers of future changes to the policy that may affect them.

5.29
In our view, the offer letter should specify:

  • when and under what circumstances postponed rates will become payable;
  • any and all fees payable;
  • that interest is payable and the current interest rate;
  • the implications for ratepayers if they fail to continue to insure their house;
  • the type of insurance coverage required; and
  • how the council will notify ratepayers of any changes to the policy that may affect them.
Recommendation 13
We recommend that the consortium councils’ offer letter specify the terms under which rates postponement will be granted.

Informing applicants about the potential implications of rates postponement

5.30
As discussed in Part 4, the rates postponement consortium has developed an actuarial model that shows the effect of rates postponement on ratepayer’s equity. Ratepayers are sent a copy of the results from this model.

5.31
Councils that offer optional rates postponement require applicants to attend a decision facilitation session to ensure that they are informed about the implications of rates postponement.

5.32
Before their application can be approved, applicants must obtain and provide to the council a certificate stating that they have undergone independent decision facilitation, and that they understand the consequences of rates postponement.

5.33
Decision facilitation is provided by Relationship Services, which uses professional, specifically trained decision facilitators to provide the sessions.

5.34
Decision facilitation involves the facilitator reviewing the results from the actuarial model with the applicant to ensure that they understand that:

  • they are using the equity in their property;
  • the interest on postponed rates over time can be quite substantial; and
  • rates postponement limits their future options – for instance, if they wish to move, the equity they will take forward to their next property is not the full sale price but the sale price less postponed rates (including fees and interest).

5.35
Decision facilitators also:

  • verify the applicant’s age;
  • explain that there is no obligation to apply for the scheme after decision facilitation;
  • clarify any technical questions the person might have about their individual situation;
  • discuss any issues that arise from the applicant considering rates postponement; and
  • ask the applicant whether they wish their family to be involved in the decision.

5.36
Decision facilitators are entirely independent of the council, and do not have an interest in whether the applicant chooses to proceed with postponement.

5.37
Decision facilitation training is customised to individual regions, so that facilitators are well informed about the individual aspects of councils’ policies.

5.38
After the decision facilitation session, facilitators certify that applicants have understood the information provided to them. Facilitators have specific training on how to judge whether applicants have understood the information, including being trained to sign the certificate only if they believe applicants have fully understood the information provided.

5.39
Applicants can have up to three sessions of decision facilitation.

5.40
As part of our audit, we reviewed the feedback Relationship Services had received on the decision facilitation sessions. Some applicants had suggested that the decision facilitation session was not necessary, and that they would prefer to sign a waiver rather than attend the sessions.

5.41
We consider that decision facilitation is an important protection for the councils, and that the current requirement for applicants to attend should not be able to be waived.

5.42
Independent decision facilitation sessions fulfil our expectations regarding informing applicants. The independence of Relationship Services from councils is a particular strength of this process.

5.43
Councils need to be aware that some properties may be held in some form of multiple ownership. In these cases, not all owners may be involved in the initial application for rates postponement. Furthermore, some owners may not be resident at the property or in the local authority’s area.

5.44
The rates postponement consortium is preparing a desk file to assist with managing postponed rates. The desk file includes procedures for seeking permission to postpone rates from all owners.

5.45
In our view, it is important that all owners receive information about optional rates postponement and sign the acceptance of conditional offer. Non-resident owners should also be informed about the decision-facilitation service.

Recommendation 14
We recommend that all consortium councils ensure that all owners of a property receive information about optional rates postponement and sign the acceptance of conditional offer.

Application process for hardship rates postponement

Informing ratepayers about the existence of the rates postponement policy

5.46
Wellington City Council’s rates assessments state that ratepayers experiencing financial hardship may have their rates postponed. Christchurch City Council includes a brochure with its rates assessments that outlines its rates postponement policy.

5.47
Both Wellington and Christchurch City Councils have their rates postponement policies available on their websites.

5.48
Wellington City Council also told us that they discuss their rates postponement policy with Grey Power, as a way of helping to inform older ratepayers about the policy.

Application documentation

5.49
Wellington and Christchurch City Councils have similar processes to document rates postponement applications and acceptances:

  • The ratepayer submits an application to join the scheme.
  • Council staff review the application against the eligibility criteria.
  • The council sends a letter advising the ratepayer whether postponement has been granted.

5.50
The application forms of both councils capture enough information to determine whether the applicant meets their criteria.

5.51
Christchurch City Council’s application forms and supplementary information accurately reflect the criteria the council uses in considering whether to grant postponement.

5.52
Wellington City Council’s rates postponement policy includes a requirement that the applicant has tried all other avenues, including seeking a reverse mortgage from their bank, to fund their rates. In line with this policy, the application form requires that applicants attach a letter outlining why their application for a mortgage or reverse mortgage has been declined. However, staff told us that, in practice, they do not check that this requirement had been complied with when deciding whether to grant rates postponement.

5.53
In our view, this requirement in the policy and on the application form may be unnecessarily deterring eligible ratepayers from applying for rates postponement. In addition, if this requirement were enforced, it could be interpreted as the council recommending the use of reverse mortgages. The council may wish to reconsider this provision.

5.54
Staff at Wellington City Council also told us that one ratepayer had been declined postponement because the level of existing mortgages over the property meant that the council did not consider there was adequate security for postponed rates.

5.55
It is prudent for councils to assess the security available before granting postponement. However, this criterion is not currently included in Wellington City Council’s rates postponement policy or application documentation.

5.56
Staff at Wellington City Council also told us that ratepayers need to have their houses insured to be granted rates postponement. However, this requirement is not mentioned in either the policy or the information supplied to the applicant.

5.57
Because of their process, both Wellington City Council and Christchurch City Council treat the application form as their agreement with the ratepayer regarding postponing rates. This means that it is especially important that the application form and supporting information accurately reflect the policy and the criteria used by the council to determine eligibility.

Recommendation 15
We recommend that all councils offering residential rates postponement ensure that publicly available information regarding rates postponement, including the application form, accurately reflects their policies and the criteria used by the council to determine eligibility.

5.58
Neither Wellington City Council nor Christchurch City Council has a provision in either their policy or the documentation supplied to applicants for advising ratepayers of changes to the policy.

5.59
In our view, when councils advise ratepayers that their application for rates postponement on the grounds of hardship has been approved, they should specify:

  • when and under what circumstances postponed rates will become payable;
  • any and all fees payable;
  • that interest is payable and the current interest rate;
  • the implications for ratepayers if they fail to continue to insure their house;
  • the type of insurance coverage required; and
  • how the council will notify ratepayers of any changes to the policy that may affect them.

5.60
Councils may wish to include a copy of the policy with their letter to the ratepayer.

Recommendation 16
We recommend that councils offering residential rates postponement outside the rates postponement consortium specify the terms under which rates postponement has been granted when they advise ratepayers that their application for rates postponement has been approved.

Informing applicants about the potential implications of rates postponement

5.61
The two councils that offer rates postponement on the grounds of hardship only that we audited do not model the effect of rates postponement on the ratepayer’s equity. They are therefore not in a position to fully inform the ratepayer about the potential implications of rates postponement in their individual case.

5.62
Both Wellington City Council and Christchurch City Council told us that their staff discuss rates postponement with applicants. It was clear to us that staffat both councils understood the importance of thoroughly discussing rates postponement with applicants. One council also commented that approaches regarding rates postponement often came through the applicant’s solicitor.

5.63
Regardless of the quality of the advice offered by council staff to applicants, there is no formal record of this advice – nor is it independent.

5.64
We consider that councils that do not explicitly recommend that ratepayers seek independent advice are potentially exposing themselves to accusations that they have acted improperly or failed to ensure that ratepayers are fully informed about rates postponement.

5.65
Both councils also produce information sheets that outline their policies, including how interest rates are set, the registration of a notification of charge on the property title, and the applicant’s right to pay their rates at any time. Wellington City Council’s information sheet also states when postponed rates will become payable.

5.66
Some other councils’ policies require that applicants for rates postponement see a budget adviser before applying for rates postponement. However, it is not clear whether the budget adviser is required to specifically discuss the implications of rates postponement with applicants.

Recommendation 17
We recommend that councils that offer residential rates postponement outside the rates postponement consortium advise ratepayers to seek independent advice before deciding to go ahead with the postponement.

5.67
As noted above, some properties may be held in some form of multiple ownership. In these cases, not all owners may be involved in the initial application for rates postponement. Councils offering postponement on the grounds of hardship need to ensure that all owners of a property are aware of, and agree in writing to, the rates being postponed.

Recommendation 18
We recommend that all councils offering residential rates postponement ensure that all of the owners of a property are aware of, and agree in writing to, the rates being postponed.

Notifying mortgagees regarding rates postponement – optional and hardship

5.68
Postponed rates take priority over other charges on a property, including mortgages. In many cases, ratepayers over 65 applying for rates postponement will not have mortgages. However, those ratepayers who do have mortgages may breach contractual obligations to their mortgagee if they do not notify them of the rates postponement. This applies to both optional and hardship forms of rates postponement.

5.69
Councils offering optional rates postponement require ratepayers with mortgages to notify their mortgagee that they wish to postpone their rates. Postponement will not be granted without a letter from the mortgagee acknowledging that the mortgagee agrees to the council registering a notification of charge on the title. The consortium has reached an agreement with the Banker’s Association and the Financial Services Federation that, unless the mortgagee believes there is a real risk to its security, it will consent to the rates on the property being postponed without requiring any change to the terms of the mortgage.

5.70
Neither Wellington City Council nor Christchurch City Council requires ratepayers to notify mortgagees that they are applying for rates postponement.

Recommendation 19
We recommend that all councils offering residential rates postponement advise applicants to notify any holders of a mortgage over their property that they intend to postpone their rates.
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