Charity unable to claim rates relief - Wi-Fi transmitters were "minimal" use, says High Court

Mr Justice Sales said that although the service provided by Public Safety Charitable Trust (PSCT) was charitable in nature, the installed equipment took up so little space that PSCT was not entitled to claim charitable relief on the rates due on the property.

"It is reasonable to infer that Parliament intended that the substantial mandatory exemption from rates for a charity in occupation of a building should depend upon the charity actually making extensive use of the premises for charitable purposes (ie use of the building which is substantially and in real terms for the public benefit, so as to justify exemption from ordinary tax in the form of non-domestic rates), rather than leaving them mainly unused," he said in his judgment.

Business rates are charged on most non-domestic premises including shops, offices, warehouses and factories. Premises are assigned a rateable value by the Valuation Office, which is part of HM Revenue and Customs (HMRC). This is used by the local authority to calculate how much the occupier of that property should pay.

Owners of commercial premises, such as shops and offices, receive a limited exemption from paying business rates on an empty property for three months after the property initially becomes vacant. However, buildings with a rateable value above £2,600 then become liable for the full amount again after this 'grace period' has passed, regardless of whether or not they are now occupied.

Under the Local Government Finance Act, registered charities are entitled to apply to the relevant local authority for an 80% discount on their business rates liability. Local authorities may also relieve a charity of the remaining 20% at their discretion. The relief is available where the relevant 'hereditament', or unit of property used for rating purposes, is "wholly or mainly used for charitable purposes".

The case was a 'test case' involving three local authorities and PSCT, which operates similar services in a number of otherwise empty buildings. In each case, the charity enters into a lease agreement for a nominal value with the landlord of the building in return for a "reverse premium payment" in the form of a charitable donation. Doing so transfers the landlord's liability to pay business rates on the empty property to PSCT.

The High Court had been asked to make a judgment in the case following conflicting decisions by separate magistrates' courts. PSCT had been successful in a ruling last year by West Cheshire Magistrates' Court, which came to its conclusion based on the use of the premises. However, Mr Justice Sales said that the magistrates in two other cases, who had focussed on the actual extent of use for charitable purposes to which the relevant building was put, had used the correct approach.

Commercial property law expert Suzanne Gill of Pinsent Masons, the law firm behind Out-Law.com, said that the decision would put occupiers in "a difficult position". She referred to a recent case in which the High Court ruled that the use by cash and carry chain Makro of a 140,000 sq ft warehouse to store 16 pallets of documents was sufficient to trigger the empty property 'grace period' under business rates legislation.

"In the Makro case, a small percentage of a unit used for storage was occupation for the purposes of rates, but in this case a small percentage was not enough to trigger occupancy requirements," she said.

"I think what's clear is that business rates are a very real and live issue for owners of empty property, as well as an increasing proportion of the costs for occupied property. We're seeing more and more cases where a lease seems to have been created solely or mainly to shift the business rates liability from one party to another," she said.

Gill said that the decision would "add grist to the mill" of the British Property Federation, a business body that is leading a lobbying campaign on the reform of business rates rules.