06 June 2013

Business rates liability for charities

The Charity Commission has reissued its warning to charities about the risks of entering into tenancy agreements with landlords seeking to take advantage of the business ratings exemption for charities. There may be significant personal liability for charity trustees entering into these arrangements.

The position has been clarified by two recent cases in the High Court, which looked at the rules on charitable exemption from business rates. Where the ratepayer is a charity, the charity is exempt from 80% of business rates if the property is ‘wholly or mainly used for charitable purposes’. The remaining 20% can be waived at the discretion of the local authority.

In the first case, Kenya Aid Programme leased two properties which were left 50% empty, with 50% used for storing furniture. The charity did not fundraise but rather relied on donations from the landlord in return for taking the leases. The Magistrates Court ruled that, as only 50% of the properties was used, it could not say that the properties were ‘wholly or mainly used for charitable purposes’, and the exemption did not apply. It ruled that the empty parts of the properties were being used for fundraising by way of the landlord’s donations, and so were not used for charitable purposes. The High Court agreed with this approach, but ordered the District Judge to reconsider the extent of the occupation for charitable purposes.

In the second case, Public Safety Charitable Trust leased a large number of properties nationwide which were empty save for broadcasting transmitters which provided free wi-fi and public safety information. Three affected local authorities argued that the exemption was not available, as the properties were not ‘wholly or mainly used for charitable purposes’. The High Court agreed. It has been reported that the charity intends to appeal the decision. In light of the judgment the Charity Commission has opened a statutory inquiry into the Public Safety Charitable Trust in order to examine various regulatory concerns, including whether the trustees properly discharged their duties when making decisions to enter into tenancy agreements and occupy those properties to further the Trust’s charitable purposes.

Local authorities will consider the extent to which a property is used for charitable purposes, as well as the purpose of that use, when deciding whether the business rates exemption is available. It is clear that using a property for fundraising for a charity alone does not amount to using the property for a charitable purpose. The review of the Kenya Aid Programme decision may provide greater clarity as to the extent of occupation required for the exemption to apply.

Category: Article