Commercial rates in the community and charitable sector

The support measures for business introduced by the government in light of the COVID-19 pandemic includes a waiver of commercial rates until the end of September 2020. However, organisations operating in the community and charitable sector should consider if they may already be entitled to an exemption from commercial rates. This exemption potentially applies to charities, community facilities such as swimming pools and men’s sheds and to organisations operating in the arts sector. 

In particular, following recent legislative changes and case law, the scope for registered charities to avail of the exemption has broadened. Therefore, while having charitable status does not automatically confer an exemption, organisations with such status should consider if it may apply to them. 

Recent developments

Under the Valuation Act 2001, charities could only qualify for exemption in a narrow range of circumstances. This legislation was however amended by the Valuation Act 2015 which, when taken together with a number of recent decisions of the Valuation Tribunal, potentially widens these circumstances.  

Conditions

The Valuation Act 2015 sets out two conditions for the exemption to apply to charities:

1. The organisation must be a charitable organisation.
2. The property on which exemption is being claimed must be occupied for charitable purposes and not for private profit.

Charitable organisation
As regards the first condition above, the Act applies the definition of charitable organisation as set out in the Charities Act 2009, so that if an organisation is registered with the Charities Regulatory Authority (CRA) it will be regarded as a charitable organisation for the purposes of the Valuation Act. 

Charitable purposes
The charity must however still illustrate that it is using the property for charitable purposes. While there was some uncertainty regarding whether this condition would be met automatically by registered charities, a recent decision of the Valuation Tribunal (Jesuit Mission Trust v Commissioner of Valuation) held that, in order to be a charitable organisation under the Charities Act 2009 an organisation must have a charitable purpose and apply its property towards that purpose, an organisation registered with the CRA would also meet the second condition. 

Private profit – Commercial enterprises
However, where the property is being occupied for private profit the exemption will not apply. Therefore, where a commercial enterprise is being carried on in the property the exemption might not be granted. For example, charity shops typically are not granted the exemption as while the profits generated may be used for charitable purposes, the use to which the property itself is put is not to carry on the activities of the charity but to carry on a commercial enterprise. 

Nevertheless, even where profits are being made it does not necessarily follow that the exemption will not apply. For example, in one case (St Vincent’s Healthcare Group) while a car park adjoining a hospital was being operated on a commercial basis, the car park would not have existed were it not for the hospital (which itself had charitable status and qualified for the exemption) and it was held that the two properties should not be considered in isolation but together so that the exemption should apply. 

Applying for exemption

It should be noted that this exemption is not automatic and must be formally applied for. In the first instance, an organisation must seek a determination from the Valuation Office on the applicability, or not of the exemption. If a positive determination is received, the organisation must then claim the exemption from their local authority.

Applicability to community and charitable sector

It is likely that many organisations in the community and charitable sector, in some cases including those functioning in the areas of arts and sport, that are charities registered with the CRA will qualify for this exemption. Where a commercial enterprise is being carried on in the premises however, then the exemption might not apply even where it is being carried on by a registered charity. But it should not be assumed that this is automatically the case either as, where the activity that is being carried on in the premises is that which qualified for the charitable status, then the exemption may still apply even if income is being generated from that activity. An example of this would be a theatre that generates income from ticket sales. 

Also, while having an income-generating activity ancillary to the main activity in the premises may complicate matters, the decision in St Vincent’s Healthcare Group illustrates, having a café or car park on site might not necessarily preclude the exemption from applying in all cases. Each case would however have to be considered on its own merits.

In summary, the recent changes in this area should expand the availability of this exemption for organisations operating in the community and charitable sector; nevertheless, the matter is not always clear-cut and must be considered on a case-by-case basis. Organisations should therefore seek advice before making an application for this exemption.

If you wish to find out more about any aspect of the above, please do not hesitate to contact a member of our not-for-profit team or our tax team.