Empty feeling?

Having to pay business rates on empty properties is a major financial headache for property owners, especially as finding tenants in a recession is not easy. However, because charities only pay 20% business rates (and even this may be waived at the discretion of the rating authority) if the land is wholly or mainly used for charitable purposes this presents an obvious ‘win-win’ opportunity for a property owner to allow a charity to occupy their premises, reducing the owner’s liability to pay business rates to nil.

This gives rise to a practice of not only encouraging a charity to occupy such premises, but to pay them to do so. Typically a landowner will meet the cost of the 20% rates liability and for good measure also make an additional donation.

In the recent case of Kenya Aid Programme v Sheffield City Council the Court was asked to consider such an arrangement. The case turned on the definition of “wholly or mainly”. It is interesting to note that in this instance it was the charity that risked having to meet the full cost of the business rates because it was argued that they were not using the premises wholly or mainly for a charitable purpose.

The charity tried to argue that the word wholly only means that they have to occupy the premises and the amount, or extent, of actual use for charitable purposes is irrelevant. The Court felt this went too far and that it was instead appropriate to take account, and place weight upon, the extent to which the premises were used for the charitable purpose. It was incorrect, however, to consider whether it was necessary for the charity to occupy two premises and considerations of how efficiently the premises were used were beyond the scope of the Court’s legitimate consideration.

Lessons to be learned

In future, charities will need to be careful when entering into these arrangements that they can confidently demonstrate that they are wholly or mainly using the premises for charitable purposes, which means, at one end of the spectrum, more than mere occupation and at the other, does not go so far as to question whether a charity has an operational need to occupy the premises and whether it is using the space efficiently.

From April 2013 onwards, local authorities that are rating authorities (e.g. districts, boroughs and unitaries) will have a vested interested in collecting as much business rate income as possible because from then onwards they will directly receive a share in any increase they can generate. This will incentivise local authorities to adopt a more aggressive approach and charitable occupations that appear to be ‘marriages of convenience” are likely to come under increasing scrutiny.

Nathan Holden is a partner and Robert Nieri is a Senior Associate at Freeth Cartwright. Nathan can be reached on 0845 077 9646 or by This email address is being protected from spambots. You need JavaScript enabled to view it., while Robert can be contacted on 0845 274 6902 or by This email address is being protected from spambots. You need JavaScript enabled to view it..