On 7 June 2023, the Supreme Court gave judgment confirming the test for eligibility for mandatory charity rates relief in England (London Borough of Merton v Nuffield Health [2023] UKSC 18). The judgment sets out clearly the test to be applied by rating authorities generally but also in particular for charities operating across multiple sites. The judgment also offers findings of the Supreme Court on certain aspects of public benefit. BDB Pitmans acted for the charity in the case. Nicola Evans summarises the case below – this article was originally published here and is reproduced with the permission of the author. A previous article she wrote on this case, previously published by the Charity Tax Group, can be accessed here.

 

Background

Nuffield Health (the Charity) is a registered charity with a charitable purpose to advance, promote and maintain health and healthcare and prevent, relieve and cure sickness and ill health, all for the public benefit. The Charity operates a number of hospitals, medical centres and fitness and wellbeing centres across multiple sites nationwide.

Where a ratepayer is a charity (or trustees for a charity) and occupies and uses a site (a hereditament in the language of the statute) wholly or mainly for charitable purposes (whether of that charity or of that and other charities), it qualifies for mandatory charitable relief (at 80%) from business rates on the site.

The Charity applied for charity rates relief on its fitness and wellbeing site in Merton. The London Borough of Merton (the council) refused and the Charity applied to the High Court for a declaration as to its entitlement to the relief. The court granted the declaration and this was upheld (by a majority) in the Court of Appeal. The council appealed to the Supreme Court.

 

The main issue before the Supreme Court

The question for the Court was one of pure construction of the second limb of the statutory test, namely whether the Charity was using the hereditament (the site in Merton) wholly or mainly for charitable purposes.

The council submitted that the requirement that the hereditament be ‘used for charitable purposes’ meant that the use at the hereditament, viewed on its own and in isolation from the rest of the Charity’s operations, must itself qualify as a use for charitable purposes and hence had to satisfy all the statutory conditions for such qualification, including the public benefit requirement.

The Charity submitted that the requirement that the hereditament be ‘used for charitable purposes’ simply meant that it must be a site (and, in the case of a multi-site charity, therefore, one of the sites) where the charitable purposes of that charity are fulfilled.

In essence, the question before the Court was whether or not the second limb of the test for mandatory charity rates relief required a redefining of the public benefit requirement, and hence the meaning of charity, for rating purposes, so that each rating authority would apply a local public benefit test at each site, distinct from the charity law test applicable to the charity’s operations overall as regulated by the Charity Commission.

 

The Supreme Court’s decision

The Court unanimously dismissed the council’s appeal, in favour of the construction of the test put forward by the Charity.

 

The rationale for the Court’s decision

The question put to the Court could (if held otherwise) have resulted in a clash between charity law and rating law, as well as potential confusion between the jurisdiction of the Charity Commission and that of each rating authority. In reaching its view, the Court has deftly avoided such difficulties, preserving the jurisdiction of charity law over the concept of public benefit and explaining where the test for mandatory rates relief relies upon charity law and where it pulls back to a fact-specific enquiry.

In doing so, the judgment contains a helpful review of the history of the relevant charity law and rating law, from their origins in English law, both coincidentally in the same Parliamentary session under Queen Elizabeth I in 1601, through to what is now the statutory test for mandatory relief in the Local Government Finance Act 1988.

The judgment notes that the formulation of the test for mandatory charity rates relief derives from recommendations of the report of the Pritchard Committee in 1959, which recommended that relief should be made ‘uniform and mandatory’ for charities with an approach ‘consistent with simplicity, certainty and economy in administration’. In particular, the report could ‘see no justification in principle for redefining the term ‘charity’ for rating purposes only’. It recommended that relief be given ‘only in respect of those hereditaments which are occupied for the purposes of the charity and not, for example, in respect of hereditaments held as an investment’.

The recommendations were introduced into legislation in 1961. The current legislation re-enacted the test using the same language. The inference was that Parliament intended the current test for mandatory relief to have the same meaning. It was appropriate, therefore, to examine the meaning of the test in the 1961 legislation, focusing on the words used in the provision in the context in which they were introduced and taking account of the purpose for which they were introduced.

Applying the ordinary rules of statutory construction in this way indicated clearly that the test for mandatory relief is confined to charities as defined in the general law of charity (now to be found in the Charities Act 2011 and relevant case law) and, in particular, the recognition that a charity by definition has purposes which are exclusively charitable (and for the public benefit).

Taking that point together with the recognition in the Pritchard report that a charity can use premises for activities (such as investment) which are lawful but incidental to carrying out their purposes, the Court determined that the test for mandatory relief required a 2-stage enquiry:

• Stage 1 enquires whether or not the ratepayer is a charity (or trustees for a charity).
  • If the ratepayer is a registered charity, that is the end of that enquiry.
  • If not, then the question will need to be determined by reference to the purposes of the ratepayer, as determined from its constitution or (if there is no constitution or if the constitution is inconclusive) by a review of its activities and the purposes they serve, looked at overall, including an assessment whether the public benefit requirement is satisfied.
• Stage 2 then enquires whether the hereditament is in fact being used wholly or mainly for the fulfilment of the charity’s (necessarily charitable) purposes or sufficiently closely connected with their fulfilment.
  • This enquiry is a factual matter, which does not, as the Court put it, ‘require the rating authority to don the cloak of the Charity Commission or the robe of the Chancery judge to decide whether those purposes are charitable’. That question has already been determined at Stage 1.
  • This factual enquiry at Stage 2 is the same whether the charity is a registered charity or not.
  • In order to qualify for relief under this formula, the hereditament ‘must be wholly or mainly used directly for activities which constitute the carrying out of the charitable purposes of the charity or, by a modest extension, for activities which directly facilitate or are wholly ancillary to the carrying out of those purposes’.

The Court found that this interpretation ‘flows simply and directly from the words used, once it is understood that a charity cannot have non-charitable purposes, but can carry on other intra vires incidental activities, such as fund raising, head office management, investment and the provision of staff accommodation’.

The Supreme Court’s analysis here skillfully manages to weave its way through these two areas of law (charity law and rating law) and to find an interpretation which is pragmatic and which preserves the integrity of both areas of law. In particular, the difficult question of public benefit is retained firmly within the general law of charity.

 

When does a use of premises qualify for relief?

There are activities which a charity can carry out which are not in direct furtherance of its purposes, such as using property for investment or for fundraising. The Pritchard Committee rationale for introducing the ‘use’ limb of the test for mandatory relief was to distinguish between use of a property for promoting a charity’s purposes and other uses which may support the purposes (such as by raising funds for the charity) but which were considered too remote from carrying out the charitable purposes to qualify for relief.

The judgment provides examples of what falls either side of the line by reference to two leading authorities from the House of Lords, referred to as the Glasgow Corporation case and the Oxfam case.

• In the Glasgow Corporation case, the question was whether use of a property adjoining a church to house a church officer in connection with his employment by the church (a charity) should attract relief (under the Scottish equivalent of the test) on the basis that it was ‘wholly or mainly used for charitable purposes’ by the charity.
  • The House of Lords determined that ‘it is much too narrow a view simply to see whether any charitable activity is carried on in the house’.
  • It determined that the use in the case was sufficiently closely connected to the carrying out of the charity’s purposes to qualify for relief because, looked at from the point of view of the charity, the use was wholly ancillary to and directly facilitated the carrying out of the purpose.
  • In reaching that decision, the court had not asked whether the use of the house viewed on its own was a charitable use. Plainly, viewed on its own, use for staff accommodation would not be a charitable purpose and did not directly advance religion. Instead, the Stage 2 enquiry asked whether the use was sufficiently closely connected with the plainly (and necessarily) charitable use of the church building next door in the advancement of religion, a factual enquiry which turned on the need to have a caretaker living near the church building.
• In the Oxfam case, the House of Lords had to consider whether the charity’s use of shops for fundraising qualified for relief. Their Lordships found that the use did not qualify for relief.
  • Fundraising was not Oxfam’s purpose (which was to relief poverty, distress and suffering) and was not sufficiently closely connected with those purposes for the use to qualify.
  • However, the enquiry was fact-sensitive again because, if the shops had been used wholly or mainly to sell produce of the labour and skill of poor, distressed or suffering people, then the use would have qualified for relief.
  • Another example given in the case was of a charity’s head office. In the case of Oxfam, the charity’s head office would not be used wholly or mainly in the actual giving of relief to those in need, but it would directly facilitate such activities. As such, use of premises for the charity’s head office would be sufficiently closely connected with carrying out its purposes to qualify for relief.
  • (The effect of the decision in relation to charity shops was subsequently reversed by legislation.)

 

How the test should be applied

The judgment sets out (at para 55) guidance for rating authorities in applying Stage 2 of the test for mandatory relief, saying that all ‘that the rating authority has to do is to ascertain what is or are the (necessarily charitable) purposes of the charity, and then decide whether in fact the sole or main use of the hereditament is in furtherance of those purposes, or sufficiently closely connected with their fulfilment’.

Applying the test to the case at hand, the Court determined that the Charity was a registered charity, its purposes being ‘irrebuttably presumed all to be charitable, in all the places where they are carried on and, viewed overall, to satisfy the public benefit requirement’ (satisfying Stage 1). The Charity ‘plainly’ used the site for the direct fulfilment of its charitable purposes (satisfying Stage 2). This was so notwithstanding that the Court of Appeal, on the facts before them, would not have found that the use of the site was for the public benefit (a point which was challenged but did not need to be decided by the Supreme Court), as it must be assumed that the poor were not excluded from benefit, on a view of the Charity’s activities in the round, it being common ground that the Charity’s trustees were not in breach of duty in the way in which they carried out the Charity’s purposes. The Charity was therefore entitled to mandatory relief.

 

Supreme Court comments on public benefit

The judgment is also of wider interest because it offers views of the Supreme Court on certain aspects of the meaning of public benefit in charity law, in particular affirming a number of points from the Upper Tribunal case commonly known as the ISC case (R (Independent Schools Council) v Charity Commission for England and Wales [2011] UKUT 421 (TCC), [2012] Ch 214).

Various arguments were raised before the Court as to how public benefit should be assessed, in particular regarding its ‘scope’ (as the Court of Appeal had put it) in terms of public benefit being available to a sufficient section of the public. In this respect, the Court:

• affirmed that, however broadly defined, a purpose ‘will not be for the benefit of a sufficient section of the public if it excludes the poor (meaning, in modern parlance, not the destitute but those of modest means)’ (para 25);
• approved as a principle ‘of general application’ (save where the purpose is specifically for relief of the poor) that the provision of benefits to the rich members of a section of the public is as charitable as the provision of those benefits to the poor (para 29); and
• confirmed that, when the question whether a body is a charity cannot be resolved purely from its constitution, and turns on whether its purpose(s) satisfy the public benefit requirement, then in considering the manner in which the body fulfils the relevant purpose(s) regard must be had to the manner in which it does so ‘overall rather than whether it does so in any particular place where its activities are carried on’ (para 30).
• In particular, where a body operates from a large number of sites, the question whether provision for the poor is only token or de minimis cannot be answered by looking only at the site or sites where provision is made for the poor, or only at the site or sites where no such provision is made.

The Court noted that some of these findings are a matter as much of practicality as of principle. It should be helpful to have some clarity here, in particular for multi-site charities looking to use their premises in the most efficient way in order to better achieve their charitable purposes overall.

 

Conclusion

Rates relief is incredibly important to the charity sector, being worth over £2bn each year. The judgment should be helpful for charities and rating authorities alike in setting out a clear test to apply for mandatory charity rates relief, in line with (as the judgment states) the ‘statutory objective of providing a generally simple, predictable and consistent answer to the question whether a charity ratepayer should have relief from business rates’.

Beyond the area of rates relief, the Supreme Court’s statements on certain principles of public benefit should also be of interest and offer some practical reassurance for charities operating across multiple sites.