Sharing Space with a Non-Charitable Trading Subsidiary - Now That's a Relief!

However, what happens if that charity wishes to share the space with a wholly-owned, non-charitable trading subsidiary?

Business Rates Liability

A person (the rate payer) must pay business rates for each day in a financial year in which it occupies all or part of a business property in England and Wales where such property is shown in any non-domestic ratings list. 

Charity Relief

Where a business property is occupied by a charity and the actual use of the property is wholly or mainly dedicated to the charitable objects of that charity, then the charity can apply for mandatory charitable relief of up to 80% of the business rates. The relevant local authority can also grant further discretionary relief of up to 100% of the business rates liability. 

The legislation does not define what 'wholly or mainly used for charitable purposes' means, but case law suggests that more than half of the property must be used for such purposes in order for charity relief to be available. It is therefore necessary to determine activities that (a) are directed at achieving the charity's objectives and (b) do not carry out charitable purposes or that only partially relate to carrying out charitable purposes (even if helpful to the charity). 

A head office used for management and administration of a charity is sufficient to qualify for business rates relief. However, a mere financial link, such as carrying on a business to raise funds for the charity, is not sufficient. The degree of occupation is also important and case law suggests that the mere occupation by a charity is insufficient to allow it to claim mandatory relief. 

Sharing with a Non-Charitable Trading Subsidiary

If a charity that qualifies for business rates relief then wishes to share its space with a non-charitable trading subsidiary, this can affect the charity's ability to continue to claim relief. 

If less than 50% of the property is occupied by the trading subsidiary this should not have any impact on the ability of the charity to claim relief (ie if 49% of the property is occupied by the trading subsidiary and 51% is occupied by the charity then case law suggests the property is still "mainly used for charitable purposes"). 

Tenancy Agreement

When documenting occupation of a charity's property by a non-charitable trading subsidiary it is necessary to consider in detail the terms upon which the subsidiary occupies the space and the nature of that occupation. 

A trading subsidiary may occupy space in a number of ways, including under a lease, a licence to occupy or a tenancy at will. The correct form of document to use will depend upon the nature of the trading subsidiary's occupation of the space, including for example whether they have exclusive possession and responsibility for matters such as maintenance, repairs, cleaning and utilities. 

If a lease is granted to a trading subsidiary then, depending upon the ability of the charity's trustees to control that subsidiary, it may be that Charity Commission approval is required before any lease is entered into. If the charity itself occupies the property under a lease then the grant of a sublease is also likely to require the consent of the charity's landlord.

From a business rates perspective the local authority is likely to be most interested in the extent of the use of the property by the trading subsidiary, irrespective of the name of the document under which it occupies the space. 

Getting it Right

Business rates relief can provide a substantial saving to a charities and this risks being lost if the charity fails to adequately consider arrangements under which a non-charitable trading subsidiary is allowed to share occupation of a property.

If you wish to discuss any of the issues raised in this article, please contact Jon Durham in our Commercial Property team on 077755 98945 or your usual contact in the Charities team. Alternatively, please complete the form below.