Ian Bowie: Scottish court upholds charitable rates relief arrangement in industrial estate office block



Ian Bowie

A decision issued last week by the Court of Session in Edinburgh concerning business rates continues a recent trend in which the courts have often upheld arrangements under which full business rates are mitigated through the use of occupational arrangements not seen prior to rates relief being pared back several years ago, writes Ian Bowie.

In recent years, the UK and Scottish governments have cut back significantly on the amount of empty property rates relief which is available to landlords or tenants of vacant commercial premises which. As a result, landlords and tenants have pursued creative solutions to take advantage of the limited reliefs still available.

One such relief is for charities. Premises which are “wholly or mainly used for charitable purposes” are liable to rates at a level no more than 20 per cent of the amount otherwise payable.

This latest court case concerned a registered charity, Centric Community Projects Limited, which was set up to offer space on beneficial terms to charities and non-profit organisations. Crucially, this purpose was recognised as charitable by the charity regulators in England and Scotland. Centric, therefore, was not what one might describe as a typical “customer facing” or “traditional” charity.

Centric signed a lease with the landlord or tenant (it is not clear which) of a three-storey office block in an industrial estate in Dyce, perhaps not a location often associated with charitable activities. Centric applied for charitable rates relief in respect that they were advertising short term licenses (to occupy) to charities and other community interest groups.

The rates authority - Aberdeen City Council - decided against awarding charitable relief as they did not agree that the property was “wholly or mainly used for charitable purposes”. The main reasoning behind this was that the property was not always in active use by charities and/or other groups.

Decision

The court ruled in favour of Centric. The judge agreed that, because of the nature of Centric’s charitable purpose, the amount of space which would be in active use at any given time would fluctuate. The council had focused solely on whether the property was in active use and not the explanation as to why the property was not in active use.

What does this mean?

In times of low occupier demand for commercial space, a landlord or other person primarily liable for business rates may be able to shield themselves from rates by introducing a charitable tenant similar to Centric. However, in addition to making sure that the tenant obtains registered charitable status, the charitable tenant needs to be careful to actively attempt to find other charities to take some or all of the space, otherwise the charity tenant may end up with liability for the full amount of rates (although probably with recourse to the landlord/commercial tenant, depending on the arrangement between the landlord/commercial tenant and the charity).

Ian Bowie is a partner at MacRoberts LLP