About 10 more charities could face legal challenges from councils attempting to reclaim business rates, according to a specialist ratings lawyer.
Jenny Wigley, a barrister at No5 Chambers, represented Sheffield City Council in the High Court in a case against the Kenya Aid Programme. The council claimed the charity was not entitled to the 80 per cent mandatory rate relief for charitable occupation of two premises because it was not putting them "wholly or mainly" to charitable use.
Wigley has told Third Sector that the ongoing KAP case, which has been referred back to the original district judge, together with a High Court judgment that went against another charity, the Public Safety Charitable Trust, showed that charitable activities must take place in a reasonable proportion of a premises for it to qualify for mandatory rate relief.
Both charities had made deals with landlords, who would otherwise have had to pay business rates on empty premises, that they would occupy those premises – known as 'hereditaments' for ratings purposes – and claim charitable rate relief in exchange for donations. But councils claimed the charities’ level of occupation was too low to entitle them to rate relief.
"I have personally heard of about 10 potential cases where charities have taken donations from landlords in exchange for token occupation," said Wigley. "There might be others of which I am not aware."
She said the recent judgments were likely to lead to other cases, but it was still not clear exactly how the law might be interpreted. "The judge made it clear in the case of the PSCT that in order to claim rate relief you need extensive use that is substantially and in real terms for the public benefit," Wigley said. "That previously wasn’t clear.
"Exactly how much use a charity is required to put a building to will depend on the type of activity and the type of hereditament. It’s also still open to debate whether it might weaken your case that you’ve agreed to occupation in exchange for funding."
After the recent cases, said Wigley, charity shops might also face a more difficult challenge – proving they are entitled to rate relief.
"If, for example, there’s a shop that occupies one floor of a four-storey building, it might struggle to show it is occupying enough of the property," she said.