The Charity Commission has reissued an alert for charities about the risks of entering tenancy agreements that intend to take advantage of business rate relief.

It follows a court judgment last month in the case of crime prevention charity the Public Safety Charitable Trust Limited, which was told it cannot claim relief for the 1,500 buildings it leases across the UK.  

The Commission first opened an investigation into the charity in October 2011 – and issued a warning about the issue to charities shortly after – when concerns were raised regarding its level of business rate relief, and the sector regulator says it is “currently investigating the charity to explore these issues further".

The judge determined in May that the mandatory 80 per cent discount on business rates for charities infers that the organisation in question make “extensive use of the premises for charitable purposes”, rather than leaving them mainly unused.

Under current legislation, the full business rate is due on empty commercial properties that remain unoccupied after three months, including lower value properties such as shops. But if a charity is occupying a commercial property it is entitled to discounted terms – with the final 20 per cent under the discretion of the local authority.

In a statement issued today, the Commission warned that if a charity is not making sufficient use of the premises for charitable purposes it may be liable for the full business rate liability. The trustees may find themselves subject to personal liability.

Commission’s advice about tenancy agreements for empty properties

The Commission, which recommends charities read up on HMRC’s charity tax advice, is offering the following advice for trustees who are considering entering into any tenancy agreements to occupy empty properties.

It says that before doing so, charity trustees must:

• be assured that the tenancy agreement is for the exclusive benefit of the charity, will further the charity’s purposes and is in its best interests;
• ensure the property is genuinely required and is fit for purpose;
• consider the potential liability of the charity to pay outstanding rates if the local authority disputes use of the premises and refuses rates relief;
• very carefully safeguard the charity’s independence and ensure the charity is not being abused for the benefit of a commercial company; and
• where appropriate, take suitable professional advice, including legal advice, before entering into a tenancy agreement.

Commission ‘will take regulatory action’

Michelle Russell, head of investigations and enforcement at the Charity Commission said: “Being able to lease properties at a low cost to use for charitable purposes helps charities keep their costs down. Where we have evidence that trustees are not exercising their duty of care and taking proper decisions, or systematically not using leased properties and allowing the good name of charity to be abused for the benefit of commercial companies, we have and we will take firm regulatory action.

“Trustees must ensure they do not enter into agreements that could jeopardise that public trust.”

Russell added that the Commission has received information from a number of local authorities concerned about situations where charities are entering into tenancy agreements on commercial properties, but where in practice the properties are, or appear to be, empty and/or only minimally used.

“The Commission has been engaging with a number of local authorities who have raised concerns,” she said. “The Commission is concerned that these charities may find themselves involved in what local authorities might consider to be business rates avoidance by landlords.

“As seen in this case involving the Public Safety Charitable Trust, this could result in charities losing not just the discretionary discount, but being required to pay full business rates.”

Charity rate relief in Wales

The issue of business rate relief for charities was in the news elsewhere recently when the Charity Retail Association announced it is to call an emergency summit on the matter.

This followed the recommendation of a government-commissioned review in Wales that charity shops should see a sharp drop in rate relief.

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