Lucy Tucker
Posted on 28 Feb 2014

Property Rates and Relief for the Charitable Sector Explained

Rates and relief for commercial property and the law surrounding it has been the hot topic of conversation recently as many property owners are finding it difficult to rent out their properties, exacerbated by their liability to pay rates. This article sets out how rates on properties apply to charities and how charities can make the most of the relief available, whether through occupation or ownership.

What are business rates?

Business rates are taxes which are charged on most commercial property such as shops, offices or warehouses. Like many other taxes, business rates assist in the payment of supply of local services to the community.

Who is liable for business rates?

The liability to pay business rates falls on the owner of the property. For the avoidance of doubt, this is defined in section 65 of the Local Government Finance Act 1988 ('the Act') as "the person entitled to possession" of the property. Therefore, in the case of rental properties, the occupier is liable for the rates.

Are properties occupied by charities entitled to relief?

Yes. Several different types of relief are available to charities. If the property is mainly used for charitable purposes and the occupying ratepayer is a charity or trustees of a charity, then an 80% relief on business rates is available. Some charities may also be entitled to an additional 20% although this is available at the discretion of the local authority.

Charities must be aware that in order to receive this relief, the premises must be "wholly or mainly used for charitable purposes" as stated in the Act. In the case of Public Safety Charitable Trust v Milton Keynes Council, it was decided that where only a small proportion of the premises was used for charitable purposes (in this case the installation of a Wifi transmitter) this did not constitute being used for charitable purposes.

Landlords must also steer clear of incentivising charities to become tenants of premises in order for the landlord to take advantage of charitable relief and avoiding having to pay empty rates. As this became more prevalent, an investigation by the Charity Commission was launched. Landlords and charities alike should be aware that this may constitute business rates avoidance.

What if the property is empty?

As mentioned above, property owners are liable for business rates if the property is empty. However, certain properties are eligible for exemption from empty rates under the Non-Domestic Rating (Unoccupied Property) (England) Regulations 2008.

Industrial property and warehouses can qualify for relief of 100% for up to 6 months, whereas retail properties such as offices and shops are able to qualify for 100% relief for a period of 3 months. However, if the owner of the property is a charitable organisation, the property will not be subject to business rates if the property is empty, as long as that once it is re-occupied, it will be used for charitable purposes.

If the property is re-occupied for six weeks or more, the owner can claim a further period of exemption (subject to the three or six month limit) when the property becomes vacant again. However, this extra exemption time is only available if the property satisfies the criteria for "rateable occupation" during the six week period of re-occupation as defined in John Laing & Son Ltd v Kingswood Assessment Committee. In this case, it was held that rateable occupation requires:

  • actual occupation/possession;
  • exclusive occupation/possession;
  • that there is a benefit or value to the occupier/possessor; and
  • that the occupation/possession has sufficient permanency.

This was further demonstrated in the case of Makro Properties Ltd v Nuneaton & Bedworth Borough Council in which the court held that occupation of less than 1% of a warehouse by 16 pallets of paperwork did in fact amount to occupation and the subsequent six month rate exemption period was granted.

Is there any further relief available for charity shops?

As revealed in the Government's Autumn Statement 2013, up to £1,000 of 'Retail Relief' will be provided to all occupied retail properties with a rateable value of £50,000 or less in 2014-15 and 2015-16.

Charity shops fall under the definition of properties that will benefit from this relief as long as they are wholly or mainly being used for the sale of goods to visiting members of the public. As with other forms of relief, this test is on use rather than occupation. Therefore, a shop which is occupied by a charity but not primarily used as a charity shop will not qualify for this relief. This relief is also discretionary so it will be up to the local authority to decide who gets this relief and what amount. This will be decided in line with their wider community objectives.

Conclusion

The relief available to charities is wide and varied. Charities must ensure that they meet the criteria discussed above in order to ensure that they receive the maximum relief to which they are entitled. It is always advisable for both landlords and tenants, whether charitable or otherwise, to seek legal advice when considering how to qualify for relief from business rates.