Business Rates Relief and Risks Relating to Empty Charity Premises
The Charity Commission has revealed that it is investigating over 700 tenancy agreements entered into by charities following complaints received from local authorities.
Under usual circumstances, full business rates are charged on vacant commercial premises that remain unoccupied for a period of 3 months or more. Relief from business rates is available where the ratepayer is a charity or the trustees of a charity provided that the property is used wholly or mainly for charitable purposes. Charities are entitled to a mandatory 80% reduction in business rates, with a further 20% discretionary reduction available on application.
Concerns have been raised that some landlords are taking advantage of the relief available to charities by offering hard to let premises at a reduced rent. This relieves the obligation on the landlord to pay full business rates. Some local authorities consider the arrangements to be a business rates avoidance scheme.
An investigation has been launched by the Charity Commission relating to property that is, or appears to be, empty although in some cases it has been claimed that the property is needed for storage or other purposes.
The Commission has acknowledged that these arrangements can provide good opportunities for charities to lease premises at low or nominal rents. Charities sometimes also receive donations from landlords reflecting a percentage of the rates that the landlord would otherwise have to pay if it were not for the agreement, although care needs to be taken that such donations do not fall foul of the new tainted charity donation rules.
The Commission has warned that such arrangements may raise potential risks for the charity if it has not followed a proper and reasonable decision-making process before entering into the tenancy. In particular, the charity may lose the 20% discretionary reduction and suffer reputational risk.
The Charity Commission has advised that before any tenancy agreements are entered into relating to empty property, the charity trustees should:
ensure that any tenancy is for the exclusive benefit of and in the best interests of the charity and furthers its purposes – any benefit to the landlord should be incidental;
ensure that the property is genuinely required and fit for purpose;
consider the potential liability that the charity will face if the local authority disputes the occupation and refuses to grant the discretionary rates relief;
protect the independence of the charity to ensure the charitable status is not abused by others; and
obtain professional advice in relation to legal, financial and reputational risks that may arise as a result of any new occupational arrangements.
If you do have any questions relating to your charity’s empty property, please do not hesitate to contact a member of our team.