Owners of commercial properties are obliged to pay business rates when their properties are vacant for three months or more. To avoid this some landlords are letting their properties out to charitable organisations. They do this because there is a potential for non-domestic rate relief of between 80-100% when a charity is occupying a property and that property is used wholly or mainly for charitable purposes.
Case law suggests that use mainly for charitable purposes means “more than half” however this interpretation may differ from local authority to local authority.
In Kenya Aid Programme v Sheffield City Council (2013) it was made clear that “mere occupation” by a charity was insufficient to allow it to be able to claim the mandatory relief, but the test does not require an assessment of whether the charity had an operational need for its occupation of the premises, nor whether it was using the space effectively.
The charity commission is aware of increasing approaches being made to charities by retailers and landlords holding difficult to let property inviting the charities to enter into tenancy agreements that would relieve the landlords of the requirement to pay full business rates in return for payment of a licence fee. However, this can cause a significant risk for charities and trustees if the charity was not making sufficient use of the premises for charitable purposes (which would attract the business rate relief) then landlords may themselves be liable to pay full business rates. Also, charity trustees may find themselves exposed to personal liability if they have not carefully considered the proposed use of the property before entering into any agreement and subsequently the claim for rate relief is not available.
If you are a charity or a landlord and are considering entering into a business rates savings scheme agreement please contact a member of our FJG commercial property team for advice and assistance – call 01206 700113 or email [email protected].