Council fails in appeal over rates liability of charity that runs 200+ fitness centres

The London Borough of Merton has lost a Court of Appeal case over a charity’s liability for rates when two justices disagreed with the third, who had given the main judgment.

In Nuffield Health v London Borough of Merton [2021] EWCA Civ 826 Merton had argued that Nuffield Health should pay rates on a fitness centre since although the organisation is constituted as a charity it runs in effect as a business.

Nuffield said that under section 43(6)(a) of the Local Government Finance Act 1988 it was entitled to relief under a clause where “the ratepayer is a charity or trustees of a charity and the hereditament is wholly or mainly used for charitable purposes (whether of that charity or of that and other charities”.

The court heard that Nuffield Health is a company limited by guarantee and a registered charity, which originally operated nursing homes and hospitals and now also operates more than 200 gyms and workplace health assessment facilities.

It has a £909.1m turnover from its trading and no longer solicits donations.

Merton decided that Nuffield’s premises were not being wholly or mainly used for charitable purposes and refused to allow rates relief.

When the case reached the High Court a judge made a declaration that Nuffield Health was entitled to relief and ordered the repayment of £930,823.95 by the council.

Lewison LJ gave Merton permission to appeal on four grounds: the judge was wrong to hold that Nuffield Health was not required to show that the premises were being used for the public benefit; the judge failed to apply the correct standard of public benefit for Nuffield Health's use of the premises; even if he did he erred in his evaluation of whether the public benefit requirement was satisfied; he was wrong to conclude that the premises were not being used wholly or mainly for fundraising.

Lord Justice David Richards said the great majority of benefits provided by Nuffield at the premises “are available only to members, and as there is no scheme for reduced membership fees”, which he said raised the question of whether people of ‘modest means’ could use it.

He said the High Court’s decisions that monthly fees of £80 were affordable to those of ‘modest means’ was “regrettably, unreasoned, I would have expected some evidence as to income levels in the local area,”

David Richards LJ continued: “I consider that it is relevant that other gyms in the same area were providing similar services and facilities for the promotion of health at materially lower membership charges, suggesting demand at those more affordable levels.”

Only “token’ facilities were provdied for non-members and these were largely promotional.

“In my judgment, [these services] are so limited as to merit the description of token, and they are insufficient to satisfy the requirement for charitable use [for rating].”

Lord Justice Nugee though said he concluded that it had not been Parliament's intention that the question of public benefit “should be assessed separately for each site on which a charity carries out its charitable activity” and preferred Nuffield Health's submission that it was entitled to relief since the whole organisation was a charity.

Agreeing with this, Peter Jackson LJ said: “It is, at least to me, surprising that such a fundamental issue of principle has not arisen before.

“In earlier times, when the contours of charity law were being formed, charitable foundations were no doubt predominantly unitary and local in nature, but for a considerable period, and certainly for the past century, national charities with local branches have been common.

“That does not mean that Merton's argument is wrong, only that it is curiously unprecedented. The corollary of this is that the authorities to which we were referred are of limited assistance on this issue, because they were not addressing it. I have, however, found that the historical development of the statutory provisions granting rating relief to charities sheds some light on the question of statutory construction.”

He added that all three judges had though agreed on the third ground that the High Court erred in law and fact in its evaluation of whether the public benefit requirement was satisfied, though given the majority against Merton’s main argument this no longer arose.

Peter Jackson LJ said: “Nuffield Health may have succeeded under the rating legislation, but its failure, on our unanimous view, on Ground 3 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."

Mark Smulian