Property

A surgery attached to a house is adding €27k to the stamp duty, what can we do?

Property Clinic: The house we are buying is registered as a commercial property

The Revenue recognises such properties as a mixed-use property for stamp duty purposes. Photograph: iStock

Wed Oct 21 2020 - 06:00

My husband and I put down an €8,000 deposit on a house which was advertised as a residential property. We have discovered that this house is actually registered as a commercial property as there was a doctor's surgery attached to it. We then discovered that the stamp duty is 7.5 per cent for a commercial premises compared with 1 per cent as residential – a difference of nearly €27,000.

We might now have to pull out of the sale of this property as the doctor is not willing to put through the application to change it back to residential (for tax reasons). However, now we’re down the cost of our solicitor’s fees (we’re pinned to our collar financially).

1) Is the estate agent liable for our solicitor’s costs, considering we were misled on the property?

2) If we do end up buying the property as a commercial property, could we hold off paying the commercial stamp duty until we get it changed back to residential? This would mean paying the late fee for the submission on the stamp duty, but it might save us thousands.

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We’re beyond stressed. We have three young children and two dogs, and we have 30 days to move out of our current house which we sold on the basis that we had our new home sorted.

You will be glad to hear that your issue is not unique and, hopefully, easily solved. Generally, this issue crops up more in commercial sales as opposed to residential.

Let me first start by giving you a simple example. If I sell a building for €1 million with a retail premises on the ground floor and an apartment on the first floor, the entire building is liable for stamp duty. However, the Revenue recognises this as a mixed-use property for stamp duty purposes. To use its own wording: “When a property is mixed use, you must apportion the consideration for the property between the residential and non-residential parts.”

Many doctors’ surgeries are attached to a private residential dwelling and often consist of little more than a converted garage/side extension which constitutes quite a small element of the overall building. Therefore, the likely scenario here is that the difference in stamp duty is negligible and is likely to be something you could work out with the vendor.

However, there are a couple of other considerations:

A) Planning on the existing house: You may need to ensure that the part of the property not used as a surgery is still in residential use. A planning search from your solicitor should resolve that but, if not, you may need to get a letter from a planning consultant to give you and your bank comfort.

B) Commercial rates: If the premises is used for commercial purposes, it's likely to be liable for commercial rates. A quick search of the valuation map from the Valuation Office at valoff.ie will identify whether it's listed. If it is then you need to notify the local authority and the Valuation Office that it is no longer in commercial use. The Valuation Office will assess the property rebus sic standibus, Latin for "things thus standing" or "as it stands" and if it's being used for residential purposes, it should not charge rates on it.

With regard to your queries in relation to whether the agent is liable for your fees and whether you should hold off paying stamp duty:

1) Estate agent’s liability: I’m not a solicitor and I suggest you take formal advice on this as it would be on a case-by-case basis and there may be mitigating factors. You claimed that you were misled. Did s/he identify that there was a surgery attached to the property? Did s/he have a disclaimer on his marketing materials? Did s/he deliberately mislead you? In truth, although frustrating, agreed sales fall out of bed regularly and for a myriad of reasons such as title, planning, etc.

It’s not in the estate agent’s interest to deliberately mislead you on any of these issues as s/he knows it will inevitably not complete and it’s a wasted effort on all sides. However, as I state above, it is really on a case-by-case basis and there may be other mitigating factors.

2) Stamp duty payment date: Stamp duty is payable on the transfer of property. Therefore, once the sale completes, you become liable irrespective of whether or not you intend to change the premises back to residential use. An alternate solution is to sign a contract but delay closing until such time as you get a residential permission. A signed contract subject to planning. However, you mentioned the vendor does not want to do this for tax reasons. The rate of stamp duty is relative to the use of the property at the date of transfer so this doesn’t look like a viable option.

Hopefully the fact that you can apportion the stamp duty rates accordingly might in fact solve your problem. I wish you the best of luck with it. – Declan Bagnall

Declan Bagnall is a chartered commercial agency surveyor and member of the Society of Chartered Surveyors Ireland, scsi.ie

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