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Risks linked to business rates relief

The Charity Commission has voiced concerns over risks charities are facing linked to business rates relief.

Charities qualify for a 80% discount on business rates for properties that they occupy and use wholly or mainly for charitable purposes, and may also be granted relief on the remaining 20% on a discretionary basis.

Landlords have to pay full business rates on commercial properties that remain empty for more than three months, including lower value properties such as small shops. This means that it is advantageous for owners of hard-to-let properties to lease them to a charity, which can then claim relief on the business rates. 

In many cases, this enables charities to lease accommodation at reduced or nominal rates. Charities also sometimes receive donations from landlords amounting to a proportion of the business rates that have been saved.

However, there is a risk that some such agreements may be viewed as business rates avoidance by the local authority. This would mean the charity losing the discretionary discount and being required to pay 20% of the full business rates.

To prevent this, charities have been advised to take the following steps before entering into a tenancy agreement:

  • 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 occupation and refuses discretionary rates relief
  • very carefully safeguard the charity’s independence and ensure the charity is not being abused for the benefit of a commercial company
  • where appropriate, take suitable professional advice, including legal advice, before entering into a tenancy agreement.



Date: 13th December, 2011
Author: Wendy Bambrick


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