Empty Properties and the Risks to Charities linked To Business Rates Relief

Full business rates are due on empty commercial properties that remain unoccupied after three months, six months in the case of industrial properties. However, charities occupying commercial property qualify for a mandatory 80% 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% as a further discount.

The Charity Commission, an independent regulator of charities in England and Wales, has been made aware of cases where charities are being approached by landlords to enter into tenancy agreements that would relieve the landlords of the requirement to pay full business rates, some charities are also actively marketing their willingness to enter into tenancy agreements with commercial landlords.

This does raise a potential risk for the charity involved if they do not follow a proper and reasonable decision-making process before entering into these tenancy agreements, in particular if they are not physically occupying the premises.

Before entering into a tenancy agreement to occupy empty properties, charity trustees would be advised to:

• ensure 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 occupation and refuses rates relief
• safeguard the charity’s independence and ensure the charity is not being abused for the benefit of a commercial company
• take professional advice, before entering into a tenancy agreement

The Charity Commission has recently been made aware of over 700 tenancy agreements where this may be the case and are examining whether or not the trustees of the charities involved have properly discharged their duties.

This is clearly a complex area of the law and in the light of a number of recent challenges by local authorities in the courts highlights the need of both parties to take professional advice before entering into an agreement, contact our rating department:

Please contact our business rates team for information and advice.