The Supreme Court has upheld the prior decisions of both the High Court and the Court of Appeal in favour of Nuffield Health in their case against the London Borough of Merton in a four-year dispute about charitable business rates relief (Nuffield Health v London Borough of Merton Council [2023] UKSC 18).

In 2021, we reported on the then Court of Appeal decision in favour of Nuffield Health, who was seeking mandatory business rates relief for a members-only gym in Merton known as "Merton Abbey". Nuffield Health argued that it satisfied the two-part qualifying test for business rates relief at this site and should therefore be entitled to the mandatory 80% rates exemption available to charities. Merton Council disagreed and has now exhausted its appeal in the Supreme Court.

Background to the case

Nuffield Health is a registered charity with 31 hospitals, 112 wellness and fitness centres and over 200 other gym and health assessment facilities in the UK. Its charitable purposes are listed as: "to advance, promote and maintain health and healthcare of all descriptions and to prevent, relieve and cure sickness and ill health of any kind, all for the public benefit."

As a general rule, charities are entitled to a mandatory 80% relief from business rates under sections 43(5) and 43(6)(a) of the Local Government Finance Act 1988. This requires that:

  1. the ratepayer is a charity or trustees for a charity; and
  2. the property in question is used wholly or mainly for charitable purposes (whether for that charity or that and other charities).

The charitable status of Nuffield Health was not in dispute in this case. The issue in dispute was whether or not the Merton Abbey gym was being used "wholly or mainly for charitable purposes".

Charitable purposes and the 'public benefit requirement'

The Charities Act 2011 states that for a purpose to be recognised in law as 'charitable' it must be "for the public benefit". This is known as the 'public benefit requirement'.

The public benefit requirement has two aspects. There must be an identifiable benefit (or benefits) and it must be made available to the public generally or to a 'sufficient section' of the public. No matter how broadly defined, a purpose will not be for a sufficient section of the public if it excludes 'the poor'. In modern times, it is accepted that this includes persons of 'modest means'.

It was this aspect of the public benefit requirement that was of particular importance in this case, and it is not the first time that its application has been considered by the courts (see in particular the decision of the Upper Tribunal in R (Independent Schools Council) v Charity Commission for England and Wales [2011] UKUT 421 (TCC)).

What was in dispute in the Nuffield Health case?

As noted above, the dispute in this case revolved around the correct application of the legal requirement that a property must be "used wholly or mainly for charitable purposes".

Merton Council contended that the applicable legislation required an assessment of the specific use of each individual property. The Council argued that Nuffield Health should not be entitled to rates relief for the Merton Abbey gym, as the membership fees charged for access to the gym made the facilities inaccessible to those of 'modest means' and as such failed to meet the public benefit requirement and was therefore not being used for 'charitable purposes'.

In contrast, Nuffield Health argued that the correct legal test was whether or not the property was one of the places where its charitable purposes were fulfilled and that charging membership fees at this particular site did not affect the charitable nature of its activities as a whole.

The Supreme Court judgment

The Supreme Court agreed with Nuffield Health, and reiterated the findings of both the Court of Appeal and the High Court that a charity's activities should be viewed as a whole, rather than on a property-by-property basis.

In their judgment, Lord Briggs and Lord Sales said:

"...regard must be had to the manner in which the body fulfils the relevant purpose or purposes overall, rather than whether it does so in any particular place where its activities are carried on. Thus for example, where a body operates from a large number of sites, the question whether provision for the poor is only token or de minimis cannot be answered by looking only at the site or sites where provision is made for the poor, or only at the site or sites where no such provision is made."

The Supreme Court also made some helpful general comments regarding the public benefit requirement. In their judgment, Lord Briggs and Lord Sales reiterated (with reference to extensive previous case law) the well-established legal position that charities may benefit the public generally (i.e. including the 'rich'), and (with the exception of charities that are specifically established for relief of poverty) it is not the case that only those activities of a charity that serve the 'poor' are capable of being charitable:

"It by no means follows that a purpose (other than of course the relief of poverty) which serves both the rich and the poor only satisfies the public benefit requirement so as to be charitable in the benefit which it provides to the poor members of its beneficial class. On the contrary, the "scope" element of the public benefit requirement is satisfied by reference to the whole of the section of the public thereby benefitted, rich and poor alike. Even if this may perhaps not accord with the perception of every modern-thinking person untrained in charity law, this is true both as a matter of logic and authority. Logically if a body, established for the purpose of promoting the health of all comers paying a membership fee which did not exclude the poor or the rich, was only charitable in the service which it provided to the poor, then having a (non-charitable) purpose also to serve the rich would mean that it was not established for charitable purposes only. Such a body would not be a charity."

In applying the statutory requirements for mandatory business rates relief, the Supreme Court explained that the legislation involves a two-stage enquiry. The first question is whether or not the ratepayer is a charity. Where the ratepayer is a registered charity (like Nuffield Health) the first stage of the legal requirements is clearly satisfied. The second question, then, is not about whether the purposes are charitable, as that has already been established. Instead, it is a purely factual question: is the property used wholly or mainly for the charity's purposes or closely connected to those purposes?

"All that the rating authority has to do is ascertain what is or are the (necessarily charitable) purposes of the charity, and then decide whether in fact the sole or main use of the hereditament is in furtherance of those purposes, or sufficiently closely connected with their fulfilment. The purpose or purposes of the charity will usually be apparent from its constitution, or (if registered) by a simply online inspection of the register maintained by the Charity Commission. The question whether that purpose or those purposes are fulfilled by the sole or main use of the hereditament is a factual matter, and will not require the rating authority to don the cloak of the Charity Commission or the robe of the Chancery judge to decide whether those purposes are charitable."

On the facts in this case, the Supreme Court ruled that Nuffield Health has charitable purposes for the advancement, promotion and maintenance of health and that it fulfils those purposes in a number of premises, including Merton Abbey gym. It was irrelevant whether or not that particular gym excluded persons of 'modest means' because:

"The rich are as much a part of the section of the public benefited by Nuffield Health's charitable activities as are the poor, and it must be assumed from its registration as a charity and from the fact that it is common ground that the trustees are not in breach of their fiduciary obligations that the poor are not excluded from benefit, on a view of Nuffield Health's activities in the round, even if they are at the Merton Abbey gym."

Nuffield Health therefore succeeded in establishing that its membership fees, which naturally exclude some members of society, did not prevent the property from being used to support its charitable purposes.

The Birketts view

As the highest court of appeal in the UK, the Supreme Court's decision is very significant and will have important implications for the assessment of business rates relief for charities.

The decision provides clear, unequivocal authority for the position that when considering whether a property fulfils the charitable purposes test for entitlement to mandatory business rates relief, a rating authority should not make the assessment on that property's individual merits. Instead, the authority must consider whether the property is used in furtherance of the charity's purposes. A property used for 'incidental activities' that nevertheless helps the charity to fulfil its purposes (e.g. a charity's head office, or necessary staff accommodation) is still being used for charitable purposes and the charity is, therefore, entitled to mandatory rates relief on that property.

This decision provides important clarity for charities with diverse property portfolios and important financial certainty for the sector, which is facing increasing financial pressure in light of the rising cost of living, increased demand and the ongoing ripple effects of COVID-19.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.