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30 May 2013

Kenya Aid Programme v The Sheffield City Council

Michael Fahy considers the recent decision of Kenya Aid Programme v Sheffield City Council [2013] EWHC 54(Admin) on the test for mandatory relief from business rates for charities.

Background

Since 1 April 2008, the obligation to pay non-domestic business rates on business premises has included those which are unoccupied.

Mandatory relief from business rates is available in respect of occupied business properties where both:

  • the rate payer is a charity or trustee for a charity; and
  • the business property is wholly or mainly used for charitable purposes.

The relief is 80% of the liability and Local Authorities have a discretion to grant charities a further 20% relief to eliminate the liability altogether.

Facts

In Kenya Aid Programme the Charity leased two warehouse units to store office furniture with the benefit of 80% mandatory rates relief.  Under a mutually convenient arrangement, the Landlord paid the rates due after application of the relief.

The Magistrates Court made Liability Orders in favour of the Local Authority against the Charity for payment of over £1.6m in business rates for the two units.  Having taken into account evidence that the Charity had spread out furniture throughout the premises, and that only approximately 50% of the available space was actually being used, the District Judge did not conclude that the premises met the second test for mandatory relief.  The Charity appealed the Liability Orders.

Held

The High Court held that the District Judge’s decision was flawed and upheld the Charity’s appeal with the matter remitted to the Lower Court for further consideration.

The correct approach was to consider, on a broad basis, whether the premises were being used wholly or mainly for charitable purposes.  The District Judge had been correct to take account of and place weight upon the extent of the Charity’s use of the warehouse units.  However, the District Judge had been incorrect to consider whether it was necessary for the Charity to occupy two premises and the extent to which its use of the premises was efficient.  Consideration of the efficiency and necessity was irrelevant and it was not a legitimate exercise for a District Judge to perform.

Comment

This makes it clear that to qualify for mandatory business rates relief, charities must be able to show that they are using the premises wholly or mainly for charitable purposes.  Mere occupation alone is not sufficient.  However, this does not require investigation of whether a charity has an operational need to occupy the premises, or is making efficient use of the space.

Charities that have entered into a mutually convenient arrangement to lease premises, such as Kenya Aid Programme, or are considering doing so, should carefully consider the need for legal advice especially where they are claiming mandatory relief from business rates.  Local Authorities are likely to become increasingly aggressive in challenging relief claimed following recent changes which enable them to keep half of any increases in business rates revenue they are able to generate.