The Charity Commission is examining over 700 cases where shop owners may be reducing their business rates liabilities by paying charities to sign tenancies for empty shops.

Last month, a Financial Times investigation found that charities were getting donations in return for signing tenancy agreements on hard-to-let shops.

Charities occupying commercial property qualify for a mandatory 80 per discount on business rates, provided the property is used wholly or mainly for charitable purposes. Local authorities also have the discretion to grant the remaining 20 per cent as a further discount.

The Charity Commission says it has heard concerns from a number of local authorities where charities are entering into tenancy agreements on commercial property but where in practice the property is, or appears to be, empty. Charities often claim they require the properties for storage or other purposes.

It warns: “As the regulator, we are concerned that these charities may find themselves involved in what local authorities might consider to be business rates avoidance by landlords. This could potentially result in charities losing the discretionary discount and being required to pay 20 per cent of the business rates.”

The Charity Commission is examining 700 cases where the above practice could be the case, warning that it could be risky for charities involved if they do not follow a proper and reasonable decision-making process before entering into these tenancy agreements, and if they are not physically occupying the premises.

The Charity Commission is aware of cases where charities are being approached by retailers and landlords. Equally, some charities are actively marketing their willingness to enter into tenancy agreements with commercial landlords.