Charitable at £80 a month? Nuffield Health gyms and business rates in UK

Most of you reading this will know that charities have to be established (a) for the pursuit of a charitable purpose and (b) for the public benefit. Public benefit is a tricky issue that resurfaces in the courts every so often, most notably in recent years in Independent Schools Council v Charity Commission, and a 2011 reference from the Attorney-General on benevolent funds. 2021 has now seen its own addition to this body of law, in the form of the Court of Appeal judgment in Nuffield Health v London Borough of Merton.

To a large extent, public benefit has been a vexed question because parliament has declined to define it. It considered doing so in the run-up to the Charities Act 2006 (now consolidated in the Charities Act 2011) but ultimately decided that the potato was too hot, so threw it to the Charity Commission, directing it to produce guidance1 on the concept. Guidance to which charity trustees must now – by statutory force2 – have regard.

So, then… what do we mean by public benefit? It has two senses: first, that the relevant purpose must actually be beneficial, and second, that the benefits must flow to a sufficient section of the public. The first sense is often straightforward enough to assess. With a new medical treatment, for example, evidence can be adduced as to its effectiveness. Or with a historic building, the National Heritage List for England is often a starting point in demonstrating genuine merit and significance (though preservation alone, without education, is not sufficiently beneficial). But the second sense of public benefit can be much more challenging, and this is where the courts have had to get involved.

Most significant over the last few years was the Independent Schools Council case in 2011. That involved the Charity Commission getting something of a bloody nose through judicial review proceedings, and having to withdraw chunks of its statutory guidance on public benefit, essentially because the ISC had shown that legally it was for charity trustees and not the Commission to determine what is adequate in terms of public benefit in the second sense.

‘The poor’ does not just mean the very poorest in society and can include people of modest means.

The court found that provision by fee-charging charities for those who cannot afford the fees (described somewhat unfortunately as ‘the poor’) must be more than minimal or tokenistic, but that beyond that baseline, the degree of provision was a matter for the trustees to assess, acting (of course) in line with their general duties. Trustees should keep in mind that, per the revised guidance: “‘the poor’ does not just mean the very poorest in society and can include people of modest means”.

Enter Nuffield Health as a further judgment in favour of charities, this time relating to rates relief. Readers will probably know that where premises are used wholly or mainly for charitable purposes by the occupying charity, that charity is entitled to a mandatory 80% relief from rates, with local authorities sometimes – though less frequently these days – granting a further element of discretionary relief.

It was not in dispute that Nuffield Health was a registered charity. Its purposes are clearly beneficial, being to: “advance, promote and maintain health and healthcare of all descriptions and to prevent, relieve and cure sickness and ill health of any kind, all for the public benefit”. The issue was that Merton council felt that the relevant Nuffield Health gym was not operated so as to provide sufficient public benefit in the second sense. Merton’s view was that ‘the poor’ could not afford the subscription of around £80 per month, and no meaningful provision was made for them to benefit in other ways from the activities at the relevant premises. According to Merton, only the activities on this particular site needed to be taken into account for the purposes of determining whether mandatory rates relief applied, and not Nuffield Health’s wider nature or activities, whether or not those involved greater provision for ‘the poor’.

Lord Justice David Richards in the Court of Appeal agreed that Nuffield Health’s use of the Merton premises would not deliver sufficient public benefit if viewed in isolation. The level of fees was, he felt, more than ‘the poor’ could reasonably be expected to afford. It was also very relevant that other gyms in the area provided equivalent services at significantly lower cost. These were points not sufficiently considered by the first instance judge, Mr Stuart Isaacs QC, against whose judgment Merton had appealed.

However, this did not ultimately mean that Merton Council won the day. While the Court of Appeal was not satisfied with the first instance judge’s reasoning on some points, it agreed (by majority, with Lord Justice David Richards dissenting) that he had been right in his finding that the analysis of whether mandatory rates relief is available should not be conducted on a site by site basis.

Under the Charities Act 2011, Nuffield Health, being registered with the Charity Commission, is “conclusively presumed”3 to be a charity. Accordingly, as Mr Stuart Isaacs QC had said, “the requirements for it to be a charity are conclusively presumed to have been met, namely that it is established for purposes which are within [the relevant section of the] 2011 Act and that the purposes in question fulfil the public benefit requirement”.

Lord Justice Nugee put it nicely, saying that Nuffield Health needed only to make the following statement: “I am a registered charity. My purposes, namely the advancement of health, are therefore (conclusively presumed to be) exclusively charitable [including that they are for the public benefit]. I am using Merton Abbey for those purposes. That is sufficient.”.

He also felt there was some weight in Nuffield Health’s argument that, in practical terms, it must be preferable for the question of what is charitable (and for the public benefit) to be determined once-and-for-all by the Charity Commission, rather than by each rating authority separately in respect of a charity’s various premises.

I am a registered charity. My purposes, namely the advancement of health, are therefore (conclusively presumed to be) exclusively charitable [including that they are for the public benefit]. I am using Merton Abbey for those purposes. That is sufficient.

On public benefit and rates, then, charities win again. But Lord Justice Peter Jackson gave a very interesting P.S. in his judgment, as follows: “I would only add this. Nuffield Health may have succeeded under the rating legislation, but its failure, on our unanimous view, on Ground 3 [essentially meaning that the public benefit requirement would not have been satisfied in respect of the premises, if the court had had to rule on that] may not be without consequences in the context of charity law. Its trustees are obliged to satisfy themselves in good faith that its provision is for the public benefit. If the situation at the Premises is replicated across its several hundred fitness centres and gyms, the organisation may face scrutiny through the Charity Commission and ultimately through the courts, as occurred in the ISC case.

Where next, then, for public benefit? It will be fascinating to see whether the Charity Commission (having perhaps recovered somewhat from the ISC case) decides to look again, and harder, at the delivery of public benefit by some fee-charging charities.