Charity’s involvement in empty property business rates mitigation scheme results in £800,000 rates bill

23 May 2017

Another charity has been investigated for involvement in a business rates mitigation scheme.

Another charity has been investigated for involvement in a business rates mitigation scheme. The Charity Commission published its statutory inquiry report into Africa Trust in March this year and found that the trustees’ actions in participating in the scheme amounted to mismanagement of the charity.

Empty commercial properties are eligible for business rates relief for a period of three months. After that, full rates are payable. Some agents have sought to take advantage of the fact that charities are eligible for mandatory 80% rates relief (provided they occupy a charity 'wholly or mainly for charitable purposes') with the remaining 20% excused at the discretion of the particular Local Authority. These agents will install a charity in a hard-to-let property so that a landlord does not have to pay rates in a deal that can be 'too good to be true' for the charity involved.

Africa Relief Trust was dormant when it was approached by someone who offered to help make the charity active again by means of an empty property business rates mitigation scheme. The person who arranged the scheme became a charity trustee of the Africa Relief Trust and operated a company which offered a national service on behalf of landlords of various types of commercial properties. The company gave the charity a letter confirming that it would cover any business rates liability charged to the charity on any of the properties involved in the scheme together with the cost of defending any challenge to its business rates relief. The company did subsequently make some donations to Africa Relief Trust, but these were less than the total of over £800,000 of unpaid business rates which were payable on several properties where the charity's rates relief claims were rejected.

This issue is not new and the Charity Commission has issued warnings about these schemes before. Previous investigations include Kenya Aid Programme (which occupied only a small part of two large warehouses with goods to send to Kenya). The Public Safety Charitable Trust's occupation of property consisted only of the installation of WIFI and Bluetooth transmitters, which equated to use of 0.1% of the property.

A search of the internet will list various agents offering to set up rates mitigation schemes for landlords, including arranging occupation by a charity in return for donations.

The Charity Commission has reiterated its advice that before entering into these kinds of arrangements and tenancy agreements to occupy empty properties, 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.

Africa Relief Trust was (it has now been closed) an unincorporated charity and therefore its charity trustees could have faced unlimited personal liability for the charity's unpaid debts to the extent they exceeded its assets. The Charity Commission is considering using its powers to disqualify the charity trustees involved from future positions.

Link to full report: Charity Commission: Inquiry report: Africa Relief Trust (22 March 2017) 

The content of this article is for general information only. If you require any advice on any of the issues raised in this article, or more generally in relation to business rates relief or any other issue relating to property owned or occupied by your charity, please get in touch with Louisa Saunders or another member of Birketts’ Charities and Social Enterprise Team.