We have commented in the past about actions local authorities are taking to challenge the availability of charitable rates relief in connection with various arrangements that charities have been involved with.
There has been a recent decision by the High Court in Kenya Aid Programme v Sheffield City Council which throws further light on this subject.
As we have previously noted, it has become increasingly common for charities and property owners to enter into arrangements on empty properties that would otherwise incur a full rating charge to enable charities to occupy the premises so as to pay a lower amount in rates.
The leases are usually set up so that the charity pays a peppercorn rent, the land-owner pays the rates via a donation to the charity plus the charity usually receives an additional donation, which represents its profit on the transaction. Local authorities have become increasingly concerned about the loss of rating income arising as a result of these arrangements.
The latest decision to consider these sorts of arrangements was that involving Kenya Aid Programme v Sheffield City Council. This is a High Court decision. The point at issue was whether the property was 'wholly or mainly' used for charitable purposes so that the charity was entitled to rates relief. The premises themselves were two large industrial units in Sheffield.
The Council's argument was that the charity was not using the premises wholly or mainly for charitable purposes. This raised two considerations. First, the property must have been wholly or mainly used during the relevant period and secondly that use must have been wholly or mainly for charitable purposes. In particular, the Court should consider the extent and context of the use of the premises in order to establish whether the property was being used wholly or mainly for charitable purposes. The extent to which a property was being so used was a question of fact.
The charity's argument was that it need only physically occupy the premises for the purposes of charitable activity; the extent or efficiency of its use of the premises was irrelevant.
The Court did not agree with the charity's argument. It considered that it was necessary to take into account, and put weight upon, the true usage of the premises. In coming to its conclusion it found support in the earlier case of English Speaking Union v City of Edinburgh Council (2009).
The judge in the English Speaking Union case held that it was necessary to take a common sense approach to the meaning of "wholly or mainly" and that meant looking at the actual physical use of the premises by the charity.
It is perhaps not surprising that the Court found for Sheffield City Council in the circumstances. It may also mean that in the future charities and landlords will be somewhat more wary about entering into those sorts of arrangements unless substantial occupation can be shown.
Although the Court overturned the District Judge's decision it has been referred back to the District Judge for further consideration in the light of the Court's decision, as the Court held that the District Judge had taken some irrelevant factors into consideration.