Since 1 April 2008, owners of empty properties in England and Wales have had to pay the same amount by way of business rates as they would if the premises were occupied. If a lease exists, the tenant becomes liable for the rates, even if the property is empty. Empty property relief (EPR) is short-lived and restricted to the first three months of vacancy for most types of property (six months for industrial or warehouse premises).
Mitigation schemes
Naturally, owners of empty properties seek to minimise their liabilities, and various schemes have emerged over the years to achieve at least partial relief. The most commonly-used schemes involve:
- intermittent occupation (of not less than six weeks on each occasion) by a separate entity to create a new right to EPR;
- use of the insolvency legislation to avoid liability for rates by the grant of a lease to a separate entity controlled by the grantor, which then resolves to be wound up on a voluntary basis, conferring exemption. In Rossendale Borough Council v Hurstwood Properties (A) Ltd and others [2019] EWCA Civ 364; [2019] PLSCS 49 the Court of Appeal recently determined that such a scheme is effective, not justifying a piercing of the corporate veil or an application of the Ramsay principle to restore rates liability to the grantor of the lease (the Ramsay principle enables a court to look at the overall legal nature of the transaction, disregarding individual steps that had no impact on the outcome);
- occupation by “property guardians” as residential accommodation, to trigger removal of the property from the rating list and its insertion in the council tax list, reducing the ratepayer’s overall liability (the 2018 VTE decision in Ludgate House Ltd v A Ricketts and LB Southwark is currently being appealed to the Upper Tribunal).
An alternative mitigation scheme utilises the mandatory exemption for occupying charities, yielding 80% discount, plus a discretionary discount of 20% at the instance of the billing authority. Naturally, occupation is key to the exemption, but first it is important to examine charitable status.
Charitable status
To obtain these discounts, the charity must be established for charitable purposes only. The easiest (but not the only) way to demonstrate this is registration with the Charity Commission, which has issued guidance as to the use of charitable status for rates mitigation.
The original guidance was issued in 2011, and this was repeated in 2013 after the failure of the Public Safety Charitable Trust (PSCT, as referred to below) to persuade the High Court that transmission of text messages from a network of Bluetooth transmitters was sufficient occupation. PSCT had been under investigation since 2011, and around 240 billing authorities were affected by the scheme.
The Commission commenced an investigation into another charity, Africa Relief Trust (ART), in 2013, and in 2017 it reconfirmed its guidance as to the use of charitable status. ART had been dissolved and removed from the register in 2015. Although the Commission is not responsible for enforcing compliance with business rates obligations, it treats very seriously any complaints on the grounds of a charity abusing its favourable status.
Trustees of a charity taking a lease for rates mitigation purposes must satisfy themselves that the occupation will further its purposes and is in the charity’s best interests. If the property is not genuinely required and fit for purpose, the charity may expose itself to full liability for business rates, with the finger of blame being pointed at the trustees as individuals.
Charities need to meet the usual criteria for rateable occupation in order to be entitled to the mandatory 80% relief in respect of occupied property. Such occupation must be actual, exclusive, of value or benefit to the charity and for a period that is not too transient. Overlaying these criteria is the requirement for the occupation to be wholly or mainly for charitable purposes.
Established case law
Provided that the use made by the charity is extensive, it is not essential that every part of the property is used.
The activities need not be charitable of themselves, provided they are (wholly or mainly) consistent with the charitable objectives of the charity and not purely for fundraising purposes (see Oxfam v Birmingham City District Council [1976] 1 EGLR 112, where charity shops were refused relief on the basis that their real purpose was fundraising). It will always be a question of fact, dependent on the circumstances, whether the “wholly or mainly” test has been met.
In a Scottish case – English Speaking Union v City of Edinburgh Council [2010] RA 227 – the Outer House of the Court of Session (broadly equivalent to the High Court, whose decisions are persuasive only in England and Wales) held that where eight floors of a building were leased and only one occupied by the charity, it would offend common sense for the whole premises to be treated as “wholly or mainly occupied” by the charity. It is necessary to look at the whole evidence before the court and decide the issue on a broad basis, having regard to the particular facts.
Subsequently, in Kenya Aid Programme v Sheffield City Council [2013] EWHC 54 (Admin); [2013] 2 EGLR 128 the High Court decided that, notwithstanding an inefficient use of space by the charity (roughly 30% overall), it was open to the Magistrates’ Court to find on the facts that the “wholly or mainly” test is met provided the charity is making use of the premises directly to facilitate the carrying out of its main charitable purposes. Essential to this consideration is the extent of such use.
The “wholly or mainly” criterion was considered further in Public Safety Charitable Trust v Milton Keynes Council and Others [2013] EWHC 1237 (Admin); [2013] 2 EGLR 133, where a network of Bluetooth transmitters was installed by the charity for public safety information purposes, this being the only occupation by PSCT. The High Court decided that the extent of use by the charity is the relevant consideration. It could not be said here that use was wholly or mainly for charitable purposes, applying the “extent of use” test.
In South Kesteven District Council v Digital Pipeline Ltd [2016] EWHC 101 (Admin); [2016] PLSCS 28 – involving occasional occupation on “appeal days” when functioning IT equipment was collected for export to Africa – the High Court confirmed that the “broad brush” approach taken in English Speaking Union was valid, and the extent of use was the key consideration.
However, the “wholly or mainly” test may be satisfied provided there is a clearly demarcated area in which services are being provided, although only 42% by area was in use in this case. The High Court quashed the original decision to refuse liability orders and remitted the matter to the Magistrates’ Court for further consideration. The decisions in Kenya Aid and Public Safety Charitable Trust were followed.
The High Court again considered the “wholly or mainly” question in My Community Space (MCS) v Ipswich Borough Council [2018] EWHC 3313 (Admin). MCS claimed to have (for the relevant periods) used the premises for exhibitions in pursuance of its charitable objects, which was contested by the council (which regarded these exhibitions as shams).
The council argued that the space occupied within the premises by the exhibitions was insufficient. The exhibitions required prior appointment, despite having been advertised, and very few members of the public attended.
The trial judge had doubted the MCS evidence and found a lack of appearance, purpose or intent of a public exhibition, concluding that MCS was not making use of the premises for its charitable purposes. The High Court confirmed the Magistrates’ Court decision in favour of the billing authority and denied mandatory relief.
Key points to take away
In conclusion, when determining the grant of mandatory relief of 80%, the billing authority is entitled to consider the extent of the premises in actual use, as well as whether that use is an exercise of the charitable objectives of the occupier.
This will involve a broad-brush approach (as adopted in English Speaking Union) and without regard to necessity or efficiency of the charity’s occupation of the premises. For example, where a charity occupies less than 50% of the space but the remainder is unoccupied, this may be sufficient for the “wholly or mainly” test to have been met.
Finally, it is worth considering briefly properties leased to charities but not currently occupied. Here, complete exemption will apply, provided that when next in use the property will be “wholly or mainly used for charitable purposes”. Rates constitute a daily tax and, therefore, a decision must be made by a billing authority based on the facts as known at the time of the application.
The “wholly or mainly” test should be applied to the anticipated future use of the property, adopting an objective and reasonable approach to reduce the risk of challenge. It is not open to a billing authority to “wait and see” whether, when next used, that use turns out to be for qualifying charitable purposes, which some authorities have been tempted to do when the charity’s occupation is intermittent.
Martin Dawbney is a consultant at Town Legal LLP
