The tax sale provisions of Part 11 of the Local Government Act (“LGA”) provide municipalities with the ultimate property tax collection tool – a forced sale of the property that is subject to tax. As the saying goes, you can’t fight City Hall!
However, not only is the annual tax sale a handy tax collection remedy, it is a procedural trap for the unwary. Not surprisingly, given the drastic consequences for the owner, the courts require strict compliance with the provisions of Part 11. If you are responsible for conducting the tax sale for your municipality, read on!
What follows is a general outline of the tax sale process, including what must be done before, at and following the actual sale. You are strongly advised to read Part 11 of the LGA in its entirety, however, if you will be conducting a tax sale.
When, Where and Who?
Section 403(1) of the LGA states that the collector must conduct the annual tax sale in the council chambers by offering for sale by public auction each parcel of real property on which taxes are delinquent. The Community Charter (“CC”) defines the “collector” as the municipal officer assigned responsibility for the collection of taxes. Often this is the officer responsible for financial administration, but check your municipality’s officers and employees bylaw, or your job description, to see if you’re on the hook!
The tax sale must be held on the last Monday in September commencing at 10 am – unless that day is a holiday. This year the tax sale is to be held on September 28, which (when we last checked) is not a holiday. Sorry, you’re not off the hook.
Advance Notice Requirements
Section 405 of the LGA requires the municipality to publish notice of the tax sale (including the time and place of the tax sale, and a description and the street address, if any, of all properties being offered for sale) in advance, in at least two issues of a newspaper. The last publication in which the notice appears must be at least 3 days and not more than 10 days before the tax sale.
There is no requirement for advance notice to the property owner. However, the LGA requires that notice of the tax be given to each owner and all charge holders, following the tax sale – see below for more information.
What are Delinquent Taxes?
Taxes on land and improvements are in arrears if they are unpaid on December 31 in the year imposed (CC s. 245(1)). This includes taxes imposed by the municipality on behalf of another local government or public body (CC s. 245(2)).
Taxes are delinquent if they remain unpaid on December 31 in the year following the year in which they became taxes in arrears (CC s. 246(1)).
What Types of Property Does the Tax Sale Apply To?
The tax sale applies to each parcel of real property. By definition (see the Schedule to the Community Charter) this means land, and includes all improvements that are “fixtures” and form part of the realty.
The tax sale remedy does not apply to a manufactured home situated in a manufactured home park. Kathryn Stuart discussed this in detail in an article that appeared in the Spring 2001 edition of our former newsletter, LoGo Law. If you have questions about the application of the tax sale to manufactured homes, contact us, or your preferred legal counsel.
The LGA also contains provisions extending the tax sale remedy to “other improvements” that are subject to taxation, and to Provincial Crown land that is held by a person under an agreement to purchase. These provisions of the LGA are not often in issue, so if you have questions about whether these sections apply to a property that you think might be subject to tax sale, ask your legal counsel.
Who Conducts the Tax Sale? What is the Process?
The LGA requires sale by public auction – no pre-arranged sales are allowed!
The collector may act as the auctioneer (LGA s. 403(4)). Presumably the collector may appoint another person to act as auctioneer, but the collector must still preside at the tax sale.
Note that the collector may adjourn the tax sale to the same hour on the following day until each parcel is sold (LGA s. 403(3)).
The LGA also authorizes the municipality to bid on the properties that are up for sale by a person authorized by Council (LGA section 406).
Section 407(1) of the LGA establishes the upset price. The “upset price” is the amount of delinquent taxes, taxes in arrears, and interest, the current year’s taxes and penalties, plus 5% of the foregoing amounts, plus fees prescribed under the Land Title Act – see LGA s. 407(1). The upset price is the lowest price for which a property may be sold.
Who Gets to Purchase the Property?
The highest bidder above the upset price, or if there is no bid above the upset price, the person who bids at the upset price, must be declared the purchaser (LGA s. 407(3)).
If no one bids on a property that is up for sale, the municipality is declared the purchaser (LGA s. 407(4)) – note that there is no discretion here. Whether or not the municipality wants the property, if no one else bids, the municipality is declared the purchaser. In that case the collector may offer the same parcel for sale later at the tax sale (LGA s. 407(5)). Also, a council may sell land it acquires at the tax sale before the end of the redemption period as long as it does so within 9 months after the purchase (LGA s. 412).
Note that the collector must promptly offer a parcel for sale again if the purchaser fails to immediately pay the purchase price. “Subject to financing” offers, and last minutes runs to the bank, are not allowed – bidders are expected to come prepared to pay the price that they bid! Although this is not in the legislation, in some jurisdictions the collector requires payment by a bank draft or certified cheque.
Post-Tax Sale Matters
While the information set out above might be sufficient to get you through the day of the tax sale, you also need to be aware of the steps that must be taken afterwards.
After the sale, the collector must provide the purchaser with a certificate of sale, signed by the collector, describing the parcel sold, stating the sale price, and stating that an indefeasible title will be applied for on behalf of the purchaser at the end of one year after the date of sale unless the property is redeemed or the sale set aside (LGA s. 409).
Notice of the tax sale must be filed in the Land Title Office (LGA s. 413).
Notice of the tax sale, and of the day the redemption period ends, must be given to the registered owner and each charge holder not later than three months after the sale (LGA s. 414). Particular attention needs to be given to the requirement for service on mortgage holders. Statutory rights of way, easements and restrictive covenants that are registered on title are not affected by the tax sale (although you are still required to serve owners of those charges). Mortgages are wiped off the title when the title is transferred to the tax sale purchaser, and a mortgagee will have a claim against the municipality if it does not receive notice of the tax sale.
Notice must be given by serving it in person or sending it by registered mail. When serving a corporate owner, it is imprudent to use the corporation’s address as stated in the records of the Land Title Office without first conducting a corporate search to make sure that this address is the registered office for the corporation. If serving by registered mail, you must follow up to ensure that the notice was actually delivered.
If you encounter problems with service, the Supreme Court may order that the notice be served by substituted service (LGA s. 414(2)). For information about service of the tax sale notice, see Ryan Bortolin’s post of December 10, 2012.
The Supreme Court of B.C. has ruled that Council’s statutory authority to deal with a manifest error in the tax sale or proceedings before the tax sale (LGA s. 423(2)) does not include errors or problems encountered in serving the notice under s. 414. Scrupulous adherence to the notice requirements is important and if problems with service are encountered, they need to be addressed early on.
The tax sale is not “final”, in the sense that the owner, and each owner of a registered charge, have the statutory right to redeem the property within the redemption period (LGA s. 417). The redemption period is one year from the day the tax sale began (LGA s. 417(2)). Council may by bylaw extend the redemption period for one year if the municipality is declared the purchaser (LGA s. 417(6)).
Section 417(3) of the LGA states what must be paid by the owner or a charge holder in order to redeem the property – this includes the upset price, any costs the collector has notice of that the purchaser has incurred in maintaining the property or preventing waste, taxes advanced by the purchaser, and interest as prescribed.
Effect on Rights of the Owner
Following the tax sale the rights of the owner immediately cease (LGA section 421), except for the following:
- the right to redemption (see above);
- the right to possession of the property is not affected during the redemption period, subject to impeachment for waste, and the right of the purchaser to enter the property to maintain it in a proper condition and prevent waste;
- the right under section 422 to bring an action to have the tax sale set aside (see next).
Actions to Have the Tax Sale Set Aside
An action may be brought within the redemption period to have the tax sale set aside on the grounds referred to in s. 422(2). Those grounds are:
- that the property was not in fact liable to taxation;
- that the taxes for which the land was sold were fully paid;
- that irregularities existed in connection with the imposition of the taxes for which the property was sold;
- that the sale was not fairly and openly conducted;
- that the collector did not given the person notice as required under section 414.
There is a requirement for the person seeking to have the sale set aside to give one month’s notice of the grounds for the complaint (s. 422(3)). Presumably this is in part so that the Council may take the action referred to in s. 423(2), if Council concludes there was a manifest error in the tax sale.
Setting Aside the Tax Sale for Manifest Error
Section 423(2) of the LGA provides Council with the power to set aside a tax sale during the redemption period, if Council finds a manifest error in the tax sale or the proceedings before the tax sale.
Registration of Tax Sale Purchaser
If the property is not redeemed within the redemption period, the collector must forward a notice of non-redemption to the registrar of land titles. The tax sale purchaser is registered as the owner of the fee simple interest in the land, subject only to the interests referred to in s. 276(1)(c) – (g) of the Land Title Act.
As a practice point, if the owner of the property is a corporation, the Land Title Office will check whether the corporation has been dissolved. If the land has escheated to the Crown as a result of the dissolution of the corporate owner, the registrar will refuse to register the certificate of non-redemption unless the Crown waives its interest under the Escheat Act.
Section 416 of the LGA entitles the owner whose property has been sold to receive the money received by the collector for the property at the tax sale above the upset price, without interest.
Indemnification and Limitations on Legal Proceedings
Tax sales are final! After the end of the redemption period, no action may be brought to recover the property or set aside the sale (LGA s. 424(1)).
However, municipalities need to be aware of LGA s. 424(3). The municipality must indemnify the owner or a charge holder for any loss or damage sustained on account of the tax sale if any of the circumstances referred to in s. 422(2)(a), (b) or (e) existed – i.e. the property was not liable to taxation; the taxes for which the property was sold were fully paid; notice of the tax sale under section 414 was not given.
An action under s. 424(3) must be brought within one year from the time allowed for redemption.
That said, no right to indemnity or compensation exists if the person claiming was aware at the time of the tax sale that the property was offered for sale or was aware during the redemption period that it had been sold (LGA s. 424(4)). For that reason, even if a municipality fails to properly give the tax sale notice within the statutory notice period, ongoing efforts should be made to notify the owner or charge holder of the tax sale pending the expiry of the redemption period.