The case arose in circumstances where certain properties that provided residential care to children and adults with disabilities, were previously unrated but became subject to valuation following applications by local authorities, prompting appeals to the Valuation Tribunal which found the properties to be exempt from rates.

The legal issue

Paragraph 14 of Schedule 4 to the Valuation Act 2001 exempts from rates any land or building occupied for caring for elderly, handicapped or disabled persons by a body that is either not established for private profit or whose expenses “are defrayed wholly or mainly out of moneys provided by the Exchequer”, excluding bodies where such defrayal occurs under the Nursing Homes Support Scheme Act 2009.

Tailte Éireann argued that ‘defrayal’ required the HSE and TUSLA to assess vouched expenses and reimburse them, which they did not do under the Service Arrangements, whereas the operators contended that their expenses were defrayed from moneys provided by the Exchequer through payments received under service arrangements.

The Supreme Court’s decision

The Supreme Court held that paragraph 14(b) speaks passively of expenses being discharged ‘out of moneys provided by the Exchequer’, focusing on the source of monies used to pay expenses rather than requiring any formal vouching or approval process by the HSE.

The Court found that where the HSE provides funds to service providers that are inclusive of all duties, taxes, expenses and other costs associated with provision of services, and the providers discharge their expenses from those monies which represent their totality or near totality of income from the Exchequer, this constitutes defrayal out of moneys provided by the Exchequer.

The Court recognised that where the HSE subcontracts provision of services it is statutorily obligated to provide, there is logic in exempting properties from which private undertakings provide such services, as the HSE would otherwise end up paying rates indirectly as part of the consideration for those services.

The Supreme Court distinguished the earlier High Court decision in Glendale Nursing Home, which concerned the Fair Deal Scheme where the State provided contributions towards individual care costs based on financial means, contrasting this with the present cases where the HSE pays all moneys used in patient care directly to the service provider who then defrays expenses from those monies.

Following the Glendale decision, paragraph 14(b) was amended to exclude bodies where defrayal occurs under the Nursing Homes Support Scheme Act 2009, which the Court held confirmed that the provision of funding under the Fair Deal Scheme did constitute ‘defrayal’, rendering the argument that defrayal requires formal vouching processes even more difficult.

The Supreme Court also rejected the approach that ‘mainly’ simply means more than 50%, holding instead that the provision was concerned with identifying properties that are functionally equivalent to HSE-operated properties because they provide services public in nature and are funded by the State, requiring that expenses be discharged ‘all, or effectively all’ by the Exchequer such that an informed lay bystander would say ‘for all intents and purposes’ the expenses are discharged by the Exchequer.

This allows for some tolerance where there is a small contribution from private patient fees or donations, but the level of that contribution must be minimal when looked at on an overall basis.

Practical takeaways for operators of designated care centres

Rates exemption availability

Properties occupied for caring for elderly, handicapped or disabled persons (language of the Act) where expenses are funded wholly or mainly by the HSE or other State agencies through service arrangements are exempt from rates under paragraph 14(b).

Service arrangement structure

The key factor is that Service Arrangements incorporate the costs of providing services, with funding from the HSE being inclusive of all duties, taxes, expenses and other costs associated with service provision. Operators do not need to submit vouched expenses to the HSE for individual approval.

Income sources matter

It should be noted that the HSE funding represented 100% (Redwood) and 97.8-100% (Nua) of income from the relevant properties. Operators should carefully assess their income sources.

For-profit operators can qualify

The judgment confirms that the exemption is available to commercial profit-making operators provided the defrayal test is met. It was argued in the case that the Schedule 4 exemptions should be generally reserved for non-profit or public-interest services but the Supreme Court rejected this argument noting that it was telling that paragraph 10 of Schedule 4 (relating to educational institutions), which explicitly requires institutions to be operating ‘otherwise than for private profit’ to qualify.

The judgment notes the contrast between the two provisions was stark. It noted that paragraphs 8(b) and 14(b) do not contain such a restriction and concluded that it must be inferred that the Oireachtas deliberately intended these provisions to apply to private profit-making undertakings.

Resident placement and payment arrangements

The fact that there was no direct agreement between operators and individual residents, that residents were not party to costing proposals, and that invoices were issued to the HSE/TUSLA rather than residents, supported the finding that expenses are defrayed by the Exchequer.

Application process

Operators who believe they qualify for exemption should apply for an exemption, providing evidence of:

• Service arrangements with the HSE or other State agencies
• Details of income sources demonstrating State funding constitutes all or effectively all revenue
• The nature of the facility as caring for elderly, handicapped or disabled persons

Conclusion

This Supreme Court decision provides welcome clarity for operators of designated care centres. The Court recognised that where the HSE subcontracts statutory services to private operators, those operators should benefit from the same rates exemption the HSE would enjoy if providing services directly, avoiding the HSE indirectly paying rates through increased service costs.