In the recent case of Kenya Aid Programme v Sheffield City Council, the High Court allowed an appeal by a charity against an order to pay business rates in respect of its use of warehouse premises.
Charities are entitled to mandatory business rates relief if the property they occupy is used wholly or mainly for charitable purposes. In this case, the charity had taken a lease of two warehouse units to store office furniture. The charity had entered into a mutually beneficial arrangement with the landlord to occupy the premises to mitigate the business rates liability. The charity paid a peppercorn rent and was responsible for all business rates. The landlord would pay to the charity an amount equal to the rates payable, taking into account the relief, together with a donation.
The local authority applied to the Court seeking liability orders. The District Judge was unable to conclude that the premises were being used wholly or mainly for charitable purposes as there was no substantial use. The Court therefore found in favour of the local authority, and made liability orders against the charity requiring payment of a sum in excess of £1,600,000. The charity appealed.
The High Court held that the original decision was flawed and should be reconsidered. Although the District Judge was correct to focus on the extent to which the premises were used by the charity, as mere occupation is not sufficient, it was incorrect to consider whether it was necessary for the charity to occupy two premises and whether it used the space efficiently. These considerations were irrelevant for the purposes of establishing whether the property was used wholly or mainly for charitable purposes.
The case clarifies how the test for mandatory charity relief from business rates should be applied. The decision will be of particular interest to charities, landlords and local authorities who are considering, or are involved in, such arrangements.
From April 2013, local authorities that are rating authorities are able to keep half of any increases in business rates revenue they are able to generate, to invest in local services. This may result in local authorities being more inclined to challenge mutually convenient charitable occupation arrangements. Charities that enter into such arrangements will therefore need to ensure that their use of premises fulfils the test for mandatory business rates relief.
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