This follows a court judgment on 14 May 2013 in the case of the charity The Public Safety Charitable Trust Limited (see endnote 1) (registered charity no. 1138450). The Charity Commission opened an investigation into the charity in October 2011 after concerns were raised regarding business rates relief, and is currently investigating the charity to explore these issues further.
In determining the appeals before the court, the judge held that in considering the criteria for rate relief on the basis of the exemption that premises were being used wholly or mainly for charitable purposes, it was reasonable to infer that Parliament intended that the substantial mandatory exemption from rates for a charity in occupation of a building should depend upon the charity making extensive use of the premises for charitable purposes (ie use of the building which is substantially and in real terms for the public benefit so as to justify exemption from ordinary tax in form of non domestic rates) rather than leaving them mainly unused.
The Commission first warned charities and trustees about the risks involved in these arrangements in December 2011 when it issued an alert via its website and the press, and urges trustees to read the following information.
Full business rates are due on empty commercial properties that remain unoccupied after three months, including lower value properties such as small shops. However, charities occupying commercial property qualify for a mandatory 80% discount on business rates, provided the property is used wholly or mainly for charitable purposes. The local authority also has the discretion to grant the remaining 20% as a further discount.
The Charity Commission is aware of cases where charities are being approached by retailers and landlords of hard to let property to enter into tenancy agreements that would relieve the landlords of the requirement to pay full business rates. It can be advantageous for charities to enter such agreements and provide good opportunities for them to lease accommodation for charitable uses, for low or nominal rents. They may also sometimes receive charitable donations from landlords that reflect a percentage of the business rates that they would otherwise be liable for.
However, these arrangements can represent a significant risk for charities and trustees. If the charity is not making sufficient use of the premises for charitable purposes which would attract the business rate relief, then it may be liable for the full business rate liability. In addition, the trustees may find themselves subject to personal liability if they have not carefully considered the proposed future use of the property before entering into any agreement and subsequently the claim for rate relief is not available.
Michelle Russell, Head of Investigations and Enforcement at the Charity Commission said:
Being able to lease properties at a low cost to use for charitable purposes helps charities keep their costs down. Where we have evidence that trustees are not exercising their duty of care and taking proper decisions, or systematically not using leased properties and allowing the good name of charity to be abused for the benefit of commercial companies, we have and we will take firm regulatory action. Charities are held in high esteem by the general public, and trustees must ensure they do not enter into agreements that could jeopardise that public trust.
The Commission has received information from a number of local authorities concerned about situations where charities are entering into tenancy agreements on commercial properties but where in practice the properties are, or appear to be, empty and/or only minimally used. The Commission has been engaging with a number of local authorities who have raised concerns. The Commission is concerned that these charities may find themselves involved in what local authorities might consider to be business rates avoidance by landlords. As seen in this case involving The Public Safety Charitable Trust Limited, this could result in charities losing not just the discretionary discount, but being required to pay full business rates.
Before entering into any tenancy agreements to occupy empty properties, charity trustees must:
be assured that the tenancy agreement is for the exclusive benefit of the charity, will further the charity’s purposes and is in its best interests
ensure the property is genuinely required and is fit for purpose
consider the potential liability of the charity to pay outstanding rates if the local authority disputes use of the premises and refuses rates relief
very carefully safeguard the charity’s independence and ensure the charity is not being abused for the benefit of a commercial company
where appropriate, take suitable professional advice, including legal advice, before entering into a tenancy agreement.
The Charity Commission has been made aware of a number of charities who have entered tenancy agreements and is examining whether the trustees of the charities involved have properly discharged their trustee duties when making the decisions to occupy those properties to further their charitable purposes, and whether any benefit to the landlord is incidental to that.
In April 2012 the Charity Commission opened a Statutory Inquiry into another charity, the Kenya Aid Programme (KAP) (see endnote 2) (registered charity no. 1137927) to investigate regulatory concerns about a potentially significant financial loss to the charity and serious governance failures. A recent court judgement disagreed with the charity as to the test for being entitled to business rates, saying that it was correct to take account of and place weight on the extent to which the premises were used. A District Judge will now look again at KAP’s use of the property and whether KAP is liable for business rates as a result.
Visit the HM Revenue Customs website for more information about charity business rates relief.
Notes to Editors
- The Charity Commission is the independent regulator of charities in England and Wales.
- Our mission is to be the independent registrar and regulator of charities in England and Wales, acting in the public’s interest, to ensure that:
* charities know what they have to do
* the public know what charities do
* charities are held to account
- The Charity Commission Media Information Centre, available on the Commission’s website, provides useful and relevant background information specifically for journalists, particularly in relation to issues that regularly attract press interest.
- There are over 162,000 registered charities, some of which have similar names or working names. To avoid confusion, each registered charity can be identified by its individual registration number, which can be checked on the Register of Charities.
- The link to the PSCT judgement can be found here
- The link to the KAP judgement can be found here