The Charity Commission are investigating claims, following an article by the Financial Times, that over 700 tenancy agreements entered into by charities appear primarily to enable the landlord to avoid business rates on empty properties rather than for a bona fide charitable purpose.
The Commission is aware that landlords are approaching charities, and charities are actively marketing their willingness, to enter into tenancy agreements of hard to let property, typically retail lock up shops, thereby relieving landlords of the requirement to pay full business rates.
The Commission was made aware of these agreements by a number of local authorities who consider that they may amount to business rates avoidance by landlords. The Commission has warned charity trustees about the potential risks if they have not followed a proper and reasonable decision making process before entering into tenancy agreements for empty premises and if their charity does not physically occupy the premises.
Charities that have entered into such arrangements should be made aware of the Commission's investigation and may wish to seek advice on any legal, financial and reputation risks should local authorities or the Commission challenge individual arrangements.
Although the Charity Commission has not raised the point, they may also wish to consider whether there is a risk of arrangements falling foul of the new tainted charity donation rules, where landlords have made a "donation" to a charity tenant on or after 1 April 2011 that reflects a percentage of the business rates that the landlord would otherwise be liable for.
In addition there may be a risk that the charity's claim for business rates relief could be challenged, on the basis that it is not actually using empty property wholly or mainly for charitable purposes.
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