"Wholly or mainly used"? The charitable relief test

How should a ratings authority approach the relevant statutory provision on charitable rates relief when determining whether a property is “wholly or mainly used for charitable purposes”? Lord Bannatyne’s opinion in Centric Community Projects Ltd v Aberdeen City Council [2019] CSOH 76 addressed this issue in a judicial review of the decision by the council (ACC) to refuse Centric Community Projects Ltd (CCPL) charitable rates relief from business rates. It provides a useful restatement and additional analysis of the proper approach to the legal test in determining when a property will be considered “wholly or mainly used for charitable purposes”, in terms of s 4(2) of the Local Government (Financial Provisions etc) (Scotland) Act 1962.

That subsection provides: “if notice in writing is given to the rating authority that any lands or heritages (a) are occupied by… a charity and are wholly or mainly used for charitable purposes (whether of that charity or of that and other charities)… then, subject to the provisions of this section, any rate leviable in respect of the lands and heritages... shall not exceed one-fifth… of the rate which would be leviable apart from the provisions of this subsection” (emphasis added).

Background

CCPL is a charity registered in Scotland with OSCR and is entered in the Scottish Charity Register. Its charitable purpose is to work with smaller charities and non-profit organisations to “promote the efficient and effective application of charitable resources by charities and for charitable purposes by the provision of commercial premises, support and related assistance to charities and for charitable objectives”. The charity effectively offered workspaces for charities and other local groups to operate.

At the relevant time, CCPL was tenant of an office space in Dyce, Aberdeen. The property was three floors in total with some open plan space and smaller offices around its edges. CCPL gave notice in July 2018 to ACC – by way of an application for charitable rates relief – that the property was (i) occupied by a charity, and (ii) used wholly or mainly for charitable purposes. This request was rejected by ACC in November 2018 following an inspection from ACC’s Revenue & Benefits division, which concluded that “it cannot be agreed that property is wholly or mainly used for charitable purposes”: para [10].

At the time of the inspection, the property was being used to display an exhibition on behalf of the Equality Council UK – itself a registered charity. A pipe band also used the property weekly or fortnightly to practise. CCPL also provided staff at the property during office hours to greet and welcome visitors, both to use the space and to see the exhibition.

The questions for the court – as summarised at para 12 – were: (1) whether ACC’s decision was within the requirements of s 4(2) of the 1962 Act; (2) whether ACC was entitled to conclude on the basis of the evidence before it whether the property was not “wholly or mainly used for charitable purposes”; and, consequently, (3) whether CCPL was entitled to charitable relief under s 4(2).

ESU as the starting point

The interpretation of s 4(2) of the 1962 Act had been the subject of judicial attention in English Speaking Union Scottish Branches Educational Fund v City of Edinburgh Council 2009 SLT 1051 (“ESU”). It is difficult to provide an overview of the present case without first providing an overview of ESU. In ESU, a charity was the tenant of an eight floored building but only used the ground floor. Lord Bonomy’s approach to the provision in ESU – in so far as materially relevant to, and relied upon in, the present case – was as follows (all at para 12):

“'Wholly' in s 4(2)(a) is not synonymous with 'solely'. The notion that an office building which is unused for any purpose throughout seven of its eight floors is 'wholly used' for the purpose for which the one floor is actually in use does not accord with common sense [herein 'part 1 ESU']...

“I find no fault with the approach taken by [City of Edinburgh Council] and with their interpretation of the subsection. They decided that, where a self-contained area comprising roughly one-eighth of the subjects was devoted to charitable purposes and the remaining separable seven-eighths of the subjects were kept vacant and out of active use, the subjects were not 'wholly used' for charitable purposes [herein 'part 2 ESU']...

“However, that does not for a moment mean that subjects must be in active use all the time or for most of the time to satisfy that test. It is possible to envisage circumstances in which a local authority might justifiably decide that subjects were wholly used for charitable purposes where a large part of them lay vacant for substantial periods of time [herein 'part 3 ESU']...

“For example, [the English Speaking Union Scottish Branches Educational Fund] might find that the demand for studying English as a foreign language varies from term to term. Or another charity might find that at certain times of the year far more working space is required than at others. In these and other similar examples the charity's circumstances might be such that the only way in which the necessary space for storage or administrative work or teaching or counselling sessions would for sure be available when required would be if it had appropriate premises available throughout the year. An examination of the circumstances in such instances might well lead the authority to the conclusion that the test under s 4(2)(a) was met [herein 'part 4 ESU'].”

Part 1 ESU, reproduced above, had been accepted as the correct approach to the interpretation of the equivalent provision under s 43(6) of the Local Government Finance Act 1988, which also adopts the phrase “wholly or mainly used for charitable purposes”, in England: Public Safety Charitable Trust v Milton Keynes Council [2013] EWHC 1237 (Admin), at paras 32-35 (Sales J, as he then was); Kenya Aid Programme v Sheffield City Council [2013] EWHC 54 (Admin) at paras 32-35 (Treacy LJ).

The outcome in ESU did not favour CCPL in the present case, in the sense that Lord Bonomy held in ESU that the property there was not being “wholly or mainly used for charitable purposes”. One of the key issues for CCPL in the present case was to establish a factual distinction between the circumstances in ESU and the present case before Lord Bannatyne. Part 2 ESU and part 3 ESU, reproduced above, were supportive of, and relied on in favour of, drawing a distinction. The distinction that Lord Bannatyne adopted in his opinion was simple: it lay in the fact that, unlike in the ESU case, no part of the property in the present case was being “kept vacant”. All floors of the property in the present case were available and advertised for use by other charities – unlike seven of the eight floors in ESU, which were not being used by the charity in that case, nor made available for other purposes: para 51.

Summarising the approach: a multi-factor assessment

Having held that there was a distinction in the circumstances of the present case vis-à-vis ESU, Lord Bannatyne went on to draw out the points that can be taken from ESU and the English authorities (in the context of the analogous applicable legislation) that approved the approach adopted in ESU: para 58. This is a useful summary – with some additional analysis – for rating authorities to be aware of:

1. An authority is required to consider the use actually made of the property (consistent with the ordinary meaning of that phrase) and determine whether the property is wholly or mainly used for charitable purposes.
2. The purpose of the use and the extent or amount of the use are both relevant to the determination of whether s 4(2) is satisfied.
3. The fact that the property is not in active use all of the time, or large parts are not in use for most of the time, does not in and of itself mean that s 4(2) is not satisfied.

The critical element of the summary above for the present case is (3), to which Lord Bannatyne added that an authority requires to have regard to “the charity’s whole circumstances” when determining whether or not s 4(2) is satisfied: para 57. It is thus a multi-factorial assessment of the charity’s whole circumstances that must be carried out, and not just a focus on what the active use of the property is at a point in time.

Lord Bannatyne then went on to apply this summary – with a particular focus on (3) – to the present case.

First, one of the key factors relied on under head (3) was CCPL’s charitable purpose: namely the provision of space for charities, for charitable purposes and to community interest groups. The nature of its charitable purposes will affect its function. This is a relevant factor to be taken into account by rating authorities. In the present case, it was “an integral element of [CCPL’s] function that there is from time to time space available to continue to fulfil its function”: para 60.

Secondly, as a result of CCPL’s charitable purpose, the extent to which the property is in active use at any given time will fluctuate. The variation in demand from time to time was a relevant factor that the authority required to have regard to: para 58. This approach can be viewed as simply applying the dicta present in part 4 ESU, reproduced above, to support the relevance and importance of the variation in demand as a relevant factor.

Thirdly, the fact that CCPL advertised space throughout the whole property was not considered by ACC. This was a relevant factor and important for two reasons: (a) this meant no part of the property had been “mothballed” or kept vacant, as in the ESU case; and (b) offering space was central to CCPL fulfilling its charitable purpose: para 65.

In the present case, it appeared that ACC’s decision was based on the sole criterion of the extent to which the property was in active use: para 64. It had failed to take account of the obvious explanation for the property not being wholly in active use, which is a result of the three relevant factors set out immediately above. This meant that ACC’s decision was one that it was not entitled to make; ACC had incorrectly applied the s 4(2) test and its decision fell to be reduced. That meant that Lord Bannatyne answered questions (1) and (2) noted above in the negative; question (3) was a matter to be addressed by further submissions and, as such, was put out by order: paras 71-73.

The safeguard against abuse of the result here is twofold: first, in Lord Bannatyne’s distinction of ESU from the present case: namely, that whilst not all of the property need be in use at all times for s 4(2) to be met, there must not be areas kept vacant (or “mothballed”); and secondly, the multi-factor test will allow the rating authority duly to take into account circumstances where a property is completely unused for long periods as a factor militating against eligibility for relief, and also whether or not a genuine attempt was being made by a charity to offer the whole property – or parts thereof – to other charities.

The key point of Lord Bannatyne’s opinion appears to be that a nuanced approach has to be taken to decisions about business rates relief for charities, particularly in hard cases such as the present case: it is not a one factor assessment and, as such, the answer may not be as straightforward as it instinctively appears. This nuanced approach has to account for the nature of the charity, its charitable purposes and the consequences thereof, such as fluctuation in demand: para 61. The case is a useful, more detailed analysis of the issue, building on the helpful dicta of Lord Bonomy in ESU as to where the limitations of s 4(2) fall.