In these difficult economic times landlords have been doing everything possible to avoid business rates on their empty units. One way that (until now) seemed to be a win-win situation was allowing a charity to lease your premises.
The landlord could pass the rates liability to the charity, which in turn was able to benefit from substantial business rate reductions (normally 20% or less of the typical rate). The landlord and the charity would share that saving through, for example, the charity paying only a peppercorn rent and sometimes receiving a donation from the landlord to its cause. However, with budgets being squeezed, Councils seem increasingly likely to challenge a charity’s right to business rate relief.
In the recent case of Kenya Aid Programme (“KAP”) v Sheffield City Council 2013, the High Court considered whether the charity qualified for relief by using its premises “wholly or mainly for charitable purposes”.
The premises in question constituted two units, used by the charity to store furniture to send to Africa; the first unit was 30-35% utilised and the second was 25-30%.
The District Judge decided that the Council was correct to refuse relief, and KAP appealed, arguing that the Judge had misapplied the test of whether the premises were wholly or mainly used for charitable purposes. KAP argued that it only needed to be in physical occupation of the premises for charitable purposes to satisfy this criteria, and that the ‘wholly or mainly phrase’ should refer to the purpose of the use rather than the extent of the actual use made of the premises.
The High Court held that KAP’s interpretation of what is required to qualify for relief was flawed – the extent of the use was indeed relevant – but held the Judge had also taken the wrong approach. It found that the Judge should not have taken into account the efficiency of the use of the premises and the necessity of the charity occupying two units. Also, it was not relevant whether the Council believed the mutual benefit of the arrangement to be rate avoidance. However, the Judge should have considered in more detail whether one of the uses of the premises was to produce revenue for KAP, and whether this could prevent the storage of furniture (the charitable use) from being the whole or main use.
The matter was therefore remitted to the District Judge for re-consideration in light of the High Court’s comments – so watch this space for further updates … !
Another recent and important case incorporating three appeals on this issue was heard on 14 May 2013. In Public Safety Charitable Trust (“PSCT”) v Milton Keynes Council and Cambridgeshire Council and Cheshire Council v PSCT the key issue was again if relief could be applied so long as the purpose of the occupation of a premises was wholly or mainly charitable or whether the extent of the use of a premises was relevant.
In all of the above appeals PSCT’s charitable activity was the provision of free internet access and broadcasting messages on crime prevention and public safety. PSCT would place a transmitter or transmitters (similar in size to a domestic broadband box) into the premises they were occupying. The transmitters took up minimal room, did not require any human operation, and only needed occasional maintenance.
The Councils in these cases all argued that this minimal use of the premises could not amount to them being used wholly or mainly for a charitable purpose, the extent of the use must be considered and therefore relief should not apply.
PSCT argued that despite the premises being substantially vacant, the sole way in which they were being used was for a charitable purpose and that relief should therefore apply.
The court agreed with the decision in the Kenya Aid case that the extent of use was relevant and the judgment concluded that:
“the substantial mandatory exemption from rates for a charity in occupation of a building should depend upon the charity actually making extensive use of the premises for charitable purposes.”
For the full Kenya Aid judgement please follow this link – https://www.bailii.org/ew/cases/EWHC/Admin/2013/54.html
For the full PSCT judgement please follow this link – https://www.bailii.org/ew/cases/EWHC/Admin/2013/1237.htmlF
or more details and another article on the case please see – https://www.propertysurveying.co.uk/newsletter/?page_id=5001