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Business Landlords Beware: Business Rate Avoidance Strategies Under Scrutiny

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Yorkshire law firm hlw Keeble Hawson LLP is urging landlords and charity trustees not to fall foul of business rate avoidance strategies linked to charities, after the Charities Commission decided to investigate concerns that current business rate relief afforded to charitable organisations is being exploited by unscrupulous landlords.

hlw Keeble Hawson logoThe Charities Commission is to scrutinise 700 tenancy agreements, to establish if landlords may be benefiting unlawfully from the exemption on business rates offered to charities, in an attempt to avoid paying rates on commercial properties. In some cases the properties in question are not even being used wholly or partially for charitable purposes, but are being left empty.

In light of the continuing and difficult conditions being faced by the commercial property sector, many properties remain empty and landlords are facing the stark reality of having to pay business rates on properties that are generating no revenue. As market conditions have worsened (especially in town centres and out of town retail parks), charities may have been seduced into tenancy agreements that would relieve the landlords of the requirement to pay full business rates. This results in a tax relief that was designed to benefit charities actually helping a commercial organisation.

Gareth Owen, commercial property partner and member of the charities sector team at hlw Keeble Hawson LLP - and himself a charity trustee - is concerned about the potential risks associated with such arrangements.

“Charities must follow a proper and reasonable decision making process in accordance with the provisions of the Charities Act before entering into any lease,” says Gareth. “If the lease is not entered into for the proper purposes of a charity then it is quite possible that the charity trustees may attract a personal liability.

Gareth recommends that, without exception, charity trustees must be absolutely assured before entering into any tenancy agreement that the transaction is for the exclusive benefit of the charity and that it will further the charity’s purposes. In addition they must make absolutely certain that the property is actually required for the charity’s purposes.

The potential liability if the local authority determines that the charity is not actually in occupation, and disallows the usual discretionary rates relief, could cause a charity serious financial difficulties.

Gareth concludes: “The Charities Commission has quite rightly pointed out that local authorities might consider this behaviour to be business rates avoidance by landlords in which the charity is complicit. Potentially the local authority could withdraw the discretionary relief, resulting in the charity being liable to pay 20% of the business rates. What is worse is that if there’s a suggestion that the relief has been claimed fraudulently then the charity and/or the trustees – and potentially the landlord - may face criminal proceedings.”

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