Charities and amateur sports clubs continue to enjoy exemption from business rates if the next use of the property is likely to be wholly or mainly for charitable or sports purposes, but there are a number of practical issues for charities that arise from the changes.
If a building is being let by a charity to generate income, an application for the exemption will need to be made by the charity to the relevant local authority when the lease terminates and the tenant is no longer responsible for paying business rates.
When they are tenants, charities should be careful when negotiating leases to resist any attempt to insert an indemnity clause entitling the landlord to compensation if the charity moves out and the landlord consequently loses rating relief.
Charities should be aware that there may be opportunities for them to secure short-term lettings of properties at favourable rents when landlords are seeking to mitigate the additional cost of otherwise leaving properties vacant. In the light of the economic downturn, there may also be opportunities to buy investment properties from landlords who are experiencing significant vacancy rates and, consequently, significant business rate burdens. This state of affairs is likely to be particularly common in poorer areas, where vacancy rates are traditionally higher.
However, these opportunities for charities might not last for long. Pressure from the commercial property sector for another change in the law is mounting. The Government argued that the new regime would provide an incentive for owners quickly to re-use, re-let or redevelop their properties. But the industry argues that it has simply added to business failure by imposing an additional tax burden at the time of a property downturn. The British Property Federation also claims that owners are resorting to demolition rather than leaving properties empty. So charities interested in buying or letting properties at knockdown prices should strike while the iron is hot.
- Rachel Roberts is a senior associate at Freeth Cartwright LLP.