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Business rates relief biting back for some charities warns solicitors
Article date: 29/10/2013
Over recent years Charities have been able to take advantage of empty commercial premises by utilising them (often rent free) and relieving the Landlord of empty property business rates. However, some of these lettings have been problematic and recent case law shows how Local Authorities are now starting to aggressively challenge some schemes potentially saddling Charities with a substantial business rates bill. Leading law firm Higgs & Sons warns on the increasing number of charities facing these hefty bills and advises on what actions may prevent charities falling unwittingly into these pitfalls in the future.
Nyree Applegarth, partner in Higgs' property dispute team explains, "Since 1 April 2008 business rates have been due on nearly all empty commercial properties that remain unoccupied for three months or more, including small units and shops. Charities occupying commercial property qualify for an 80% discount on business rates provided the property is used wholly for mainly charitable purposes. Local Authorities have had the discretion to waive the remaining 20% as a further discount. This arrangement has been very attractive to Landlords who have been willing to let to Charities for very low or nil rents.
"The most common use of commercial properties made by Charities is shops to sell goods to raise funds to further the Charity's aims. However, care has to be taken where Charities choose to trade as a subsidiary or share their retail premises with a third party as this may affect the entitlement to business rates relief."
A recent case where an arrangement was challenged involved the Kenya Aid Programme ("KAP") which stored furniture in two huge industrial units in Sheffield which had stood empty for a long time. She commented, "KAP paid a peppercorn rent and received a donation from its Landlord equal to 20% of the business rates liability. Sheffield County Council refused the mandatory charitable relief (80%) because in its view the Charity's use of both properties was insufficient. The High Court have made it clear that in order for the mandatory relief for business rates to apply a Charity must be able to demonstrate that it was wholly making use of the premises for charitable purposes and mere occupation by the Charity is not enough".
A second recent case involved a Public Safety Charitable Trust ("PSCT"). They install transmitting devices in approximately 250 properties in order to send public safety messages. PSCT would install a small transmitting device (not much larger than a broadband router that you would find in your own home) in each of the other identical properties. Three Local Authorities rejected PSCT's claim for business rates relief and refused to allow 80% mandatory relief, on the basis that the PSCT were not using the property wholly or mainly for charitable purposes.
The High Court ruled that PSCT were liable for the full business rates which ran to approximately £2 million.
Nyree continues "Accordingly, if a Charity is thinking of renting commercial premises they must take care before they enter into the arrangement as they may find that they become liable for full business rates or the Charity Trustees may be personally liable if they have not carefully considered the proposed future use of the property.
It's important that Charity Trustees consider the following points before entering into any agreements:
Whether the Tenancy Agreement is for the exclusive benefit of the Charity or furthers the Charity's purposes and is in its best interest?
- Trustees should ensure that the property is genuinely required and is fit for purpose.
- They must consider the potential liability of the Charity to pay outstanding rates if the Local Authority disputes the use of the premises and refuses relief.
- The Trustees must ensure that the Charity is not being abused for the benefit of a commercial company.
Higgs has a number of specialists in the field of property dispute resolution, dedicated to providing clients with practical advice and solutions to problems. Their aim remains to bring about the resolution of disputes in a proportionate and cost effective way. To find out more call Nyree 0845 111 5050 or email firstname.lastname@example.org.