INTRODUCTION
Eligibility for Section 43(6) of the Local Government Finance Act 1988 ('LGFA 1988') - Rateably Occupied Hereditament - Charitable Relief
Where a person (natural or legal) is liable for business rates because that person is in rateable occupation[1] of the relevant hereditament on the relevant day(s), that person (the ‘ratepayer’) may wish to argue that the quantum of rates the ratepayer must pay, is reduced to 20% of what it otherwise would be, because the ratepayer qualifies for relief under section 43(6) of the LGFA 1988 - commonly known as charity relief.
Reduction to Quantum of Business Rates
Normally, the chargeable amount for Business Rates for a chargeable day, is set using the following formula[2]:
(A×B)/(C)
However, where the ratepayer qualifies for section 43(6) LGFA 1988 relief, section 43(5) applies[3] a varied formula:
(A×B)/(C×5)
The addition of the ‘x5’ below the line, reduces the product of the formula to 20% of what it otherwise would be.
This is how the 80% reduction is applied to the quantum of tax to pay.
Who is Eligible for this Reduction/Relief
The key question is though: Who is entitled to this reduction?
Section 43 of the LGFA 1988 is entitled ‘Occupied hereditaments: liability’ and subsection (6) reads:
‘This subsection applies where on the day concerned
(a) the ratepayer is a charity or trustees for a charity and the hereditament is wholly or mainly used for charitable purposes (whether of that charity or of that and other charities)'
This commendably short provision, has generated quite a lot of law.
COMPONENTS
Section 43(6)(a) can be broken down into its components. There is:
(1) The ratepayer must be a 'charity or trustees for a charity' - so a component focused on the ratepayer's nature/attributes; and
(2) The 'hereditament is wholly or mainly used for charitable purposes' - so a component focused on the hereditament itself, and in particular, how it is used on the 'day concerned'. For the benefit of clarity, there is then the words in parenthesis.
COMPONENT 1 - Charity or Trustees for a Charity
Section 67(10) of the LGFA 1988 provides, as we will see, a definition of ‘charity’, but it is helpful first to note that:
(1) the registration by the Charities Commission, of an institution, as a charity, makes it conclusively presumed that that institution is a charity[4a]. Non-registration does not have the converse effect. An institution might still be a charity even if it is not registered as such with Charities Commission. Indeed, some institutions are encouraged not to be registered by the Charities Commission.
(2) A charity can come in various forms, but at their core in the author’s broad-brush view[4b], they are either:
(i) a legal person who’s constitutional objectives are limited to charitable purposes;
(ii) a legal or natural person(s), holding an asset (or set/collection of assets) not for that persons' own benefit (or at least, not just), but as trustee(s), for the benefit of the public/a sufficient section of the public. The structure/instrument of the trust, confining use of the assets (principal and 'fruit'), to only charitable purposes; or
(iii) legal or (more usually) natural persons, forming a charitable unincorporated association.
Section 67(10) of the LGFA 1988
Turning to section 67(10) of the LGFA 1988, this subsection provides a definition of ‘charity’, in these terms:
‘A charity is an institution or other organisation established for charitable purposes only or any persons administering a trust established for charitable purposes only.’
Sitting along side this definition in section 67(10) LGFA 1988, is the definition of 'charity' provided by section 1 of the Charities Act 2011 ('2011 Act'). Section 1 of the 2011 Act is entitled 'Meaning of "charity", and reads:
'(1) For the purposes of the law of England and Wales, “charity” means an institution which
(a) is established for charitable purposes only, and
(b) falls to be subject to the control of the High Court in the exercise of its jurisdiction with respect to charities.'
'Institution' in the 2011 Act is defined by section 9(3) of the 2011 Act: 'In this Act “institution” means an institution whether incorporated or not, and includes a trust or undertaking.' There is no definition of 'undertaking' in the 2011 Act.
However, this 2011 Act definition is, in a sense a default definition, applicable where the relevant enactment does not itself contain an express definition of 'charity'. The default nature of the 2011 Act definition is created by subsection 1(2) of the 2011 Act, which provides:
'The definition of “charity” in subsection (1) does not apply for the purposes of an enactment if a different definition of that term applies for those purposes by virtue of that or any other enactment.'
Given the LGFA 1988 itself, through subsection 67(10), does provides a definition of 'charity', then it will be the subsection 67(10) definition which will apply to business rates cases.
Charitable purposes
'Charitable purposes' in section 67(10) is to be read in accordance with section 2 of the 2011 Act. Authority for this proposition can be found in Derby Teaching Hospitals NHS Foundation Trust v Derby City Council [2020] Ch. 586 (‘Derby Teaching’), wherein Morgan J said, after setting out a useful survey of the 2011 Act[5], at paragraph 47, without objection:
‘It is agreed that the reference in section 67(10) of the [LGFA 1988] to “charitable purposes” is a reference in an enactment within section 2(2) of the 2011 Act so that that reference'
[I interject here: the ‘reference’ here is to the words ‘charitable purposes’ in section 67(10)]
'is to be read in accordance with section 2(1) of the 2011 Act (assuming that the definition in section 67(10) of the [LGFA 1988] is the relevant definition).'
'Charitable purposes' in the section 67(10) definition therefore must be read in light of section 2 of the 2011 Act, both subsections (2) and (1). Taking them in reverse order:
Section 2(2) of the 2011 Act reads:
'Any reference in any enactment or document (in whatever terms) - (a) to charitable purposes, or (b) to institutions having purposes that are charitable under the law relating to charities in England and Wales, is to be read in accordance with subsection (1).'
Section 2(1) of the 2011 Act reads:
‘For the purposes of the law of England and Wales, a charitable purpose is a purpose which-;
(a) falls within section 3(1), and
(b) is for the public benefit (see section 4).’
Note: sections 2(3) and 2(4) contain some exceptions to these general propositions (identified in the footnote[6]).
Accordingly, for a purpose to be ‘charitable purpose’ - within the meaning of that phrase in section 67(10), the purpose must both: (a) fall within section 3(1) of the 2011 Act; and (b) be for the public benefit (as defined by section 4 of the 2011 Act). They are cumulative.
Section 3 - Descriptions of purposes
Section 3 of the 2011 Act is entitled ‘Descriptions of purposes’ and subsection 3(1) provides:
'(1) A purpose falls within this subsection if it falls within any of the following descriptions of purposes-
(a) the prevention or relief of poverty;
(b) the advancement of education;
(c) the advancement of religion;
(d) the advancement of health or the saving of lives;
(e) the advancement of citizenship or community development;
(f) the advancement of the arts, culture, heritage or science;
(g) the advancement of amateur sport;
(h) the advancement of human rights, conflict resolution or reconciliation or the promotion of religious or racial harmony or equality and diversity;
(i) the advancement of environmental protection or improvement;
(j) the relief of those in need because of youth, age, ill-health, disability, financial hardship or other disadvantage;
(k) the advancement of animal welfare;
(l) the promotion of the efficiency of the armed forces of the Crown or of the efficiency of the police, fire and rescue services or ambulance services;
(m) any other purposes-
(i) that are not within paragraphs (a) to (l) but are recognised as charitable purposes by virtue of section 5 (recreational and similar trusts, etc.) or under the old law,
(ii) that may reasonably be regarded as analogous to, or within the spirit of, any purposes falling within any of paragraphs (a) to (l) or sub-paragraph (i), or
(iii) that may reasonably be regarded as analogous to, or within the spirit of, any purposes which have been recognised, under the law relating to charities in England and Wales, as falling within sub-paragraph (ii) or this sub-paragraph.
Subsections 3(2), 3(3) and 3(4) provide some illumination about specific words/phrases used in subsection 3(1) above[7a].
Section 4 - The public benefit requirement
Section 4 of the 2011 Act is entitled ‘The public benefit requirement’ and it provides:
‘(1) In this Act ‘the public benefit requirement’ means the requirement in section 2(1)(b) that a purpose falling within section 3(1) must be for the public benefit if it is to be a charitable purpose.
“(2) In determining whether the public benefit requirement is satisfied in relation to any purpose falling within section 3(1), it is not to be presumed that a purpose of a particular description is for the public benefit.
“(3) In this Chapter any reference to the public benefit is a reference to the public benefit as that term is understood for the purposes of the law relating to charities in England and Wales.
“(4) Subsection (3) is subject to subsection (2).’
Established for charitable purposes only
The further question is whether the institution was ‘established for charitable purposes only’.
In Derby Teaching, an NHS related case, Morgan J stated that his task was to determine:
‘whether a foundation trust is an institution “established for charitable purposes only”, which is the relevant statutory wording, whether I am applying section 67(10) of the [LGFA 1988] or section 1(1)(a) of the 2011 Act.’ (paragraph 52)
Morgan J started his analysis, at paragraph 53, by stating that ‘Some matters are clear as to the meaning of the phrase “established for charitable purposes only”.
He then listed matters he was clear on, as follows (which I shall present as numbered points):
(1) ‘First, in a case like the present, the purpose for which an institution is established will be defined by the instrument which establishes the institution.' (paragraph 53 of Derby Teaching)
A similar point was made in R (Independent Schools Council) v Charity Commission for England and Wales [2012] Ch.214 (‘Independent Schools’) in the Upper Tribunal (Tax and Chancery); Warren J with 2 others, said at paragraph 116:
‘...we wish to say something about identification of the objects of an institution. The starting point must, of course, be the governing instrument which falls to be construed according to the ordinary canons of construction, about which we need say nothing.
By way of example, in Derby Teaching, which involved an (NHS) foundation trust, Morgan J said '...the relevant instrument was the relevant statutory provisions and the constitution of the foundation trust.’ (paragraph 53 of Derby Teaching)[7b]
(2) ‘The court does not assess the purposes for which an institution is established by considering the motives of those who established the institution.’ (paragraph 53 of Derby Teaching)
Similarly, in Independent Schools, the Upper Tribunal said, at paragraph 116:
‘In accordance with well established principle, the motives and intentions of the founders of the institution are otherwise irrelevant to the exercise of construction.’[7c]
(3) ‘The word “only” is of the essence. An institution which is established for charitable purposes and for other purposes is not a charity. This is the case even if, in practice, the institution pursues only its charitable purposes. It will also be the case if the other purposes are to be less significant or less extensive than the charitable purposes.’ (paragraph 53 of Derby Teaching)[7d]
In Camden Borough Council and Preston City Council v Saint Benedict's Land Trust Limited [2020] EWHC 3738 (Ch), HHJ Halliwell sitting as a Judge of the High Court said, at paragraph 3:
'For a trust to be charitable, it must have objects that are exclusively charitable.'
The point that the subsequent practice of the institution is not relevant, was made also in Independent Schools, wherein the Upper Tribunal said, at paragraph 187:
‘The question arises whether such a school is established for charitable purposes only. It was clear, we think, under the law prior to the 2006 Act, that whether a trust or institution which had a written constitution was a charity was to be ascertained by reference to that constitution. It was not permissible to look at the subsequent activities of the institution to ascertain its status.'[7e]
(4) ‘Section 67(10) of the [LGFA 1988] and sections 1 and 2 of the 2011 Act refer to the “purposes” for which an institution is established. As a matter of nomenclature, “purposes” are sometimes referred to as “objects” and “purposes” and “objects” can usually be distinguished from “powers”.’ (paragraph 54)
Explaining this distinction, the Morgan J in Derby Teaching said, at paragraph 54:
‘The usual distinction is that an institution is given its powers to enable it to carry out its purposes or objects so that its powers are not themselves distinct purposes or objects.' The focus then for applying the test of whether the institution/organisation was established for charitable purposes only, is on the objects and purposes, not on the powers, and asking whether all those objects and purposes are charitable.
However, it was recognised that '...sometimes this distinction becomes blurred or is difficult to apply.' (paragraph 54). And that 'Oxford Group v Inland Revenue Comrs [1949] 2 All ER 537 is an example of a case where the court considered that certain provisions in a company's memorandum of association which were described as “powers” extended the purposes of the company and produced the result that the company was not established for charitable purposes only.’
(5) There is a (further) distinction between ends, means and consequences. In Derby Teaching, Morgan J said, at paragraph 55:
‘ where it has been held that the institution is authorised to carry on activities or confer benefits which are not themselves charitable it may be held that these activities or benefits are merely subsidiary or incidental to the charitable objects or purposes of the institution. In this context, distinctions between ends, means and consequences have been suggested to be helpful: see Picarda, The Law and Practice Relating to Charities, 4th ed (2010), p 333. These distinctions were described by Lord Millett in the Privy Council in Latimer v Comr of Inland Revenue [2004] 1 WLR 1466, para 36, where he said:
“The distinction is between ends, means and consequences. The ends must be exclusively charitable. But if the non-charitable benefits are merely the means or the incidental consequences of carrying out the charitable purposes and are not ends in themselves, charitable status is not lost.”[7f]
In other words, the institution/organisation will still be 'established for charitable purposes only' if those objects/purposes which are its ends, are exclusively charitable. By definition, the institution/organisation's other objects/purposes, will not be the institution/organisation's ends, and so - the institution/organisation will remain 'established for charitable purposes only' though these other objects/purposes permit/authorise non-charitable activities/conferrance of benefit. They will be: (1) the means of furthering the ends objects/purposes of the institution/organisation's; or (2) incidental consequences of achieving/attempting to achieve, the ends of the institution/organisation. Charities that bestow their charitable benefit through apparently non-charitable activities may wish to consider this.
While not points made by Morgan J in Derby Teaching, one could add the following two additional points:
(6) A charitable company needs to specify its objects, at least if incorporated after 1 October 2009. Section 31 of the Companies Act 2006, entitled 'Statement of company's objects', has, since 1 October 2009, contained section 31(1). Section 31(1) provides that:
'Unless a company's articles specifically restrict the objects of the company, its objects are unrestricted.'
and
(7) 'In the context of objects which are potentially charitable, the court will often lean in favour of reading into general words - as was done in In re Hetherington, decd [1990] Ch1 - an implication that the object is qualified by the words such as ‘as far as charitable’. That will be the inevitable consequence where the relevant document makes it clear that the institution is intended to be a charity.’ (paragraph 116 of Independent Schools).
COMPONENT 2 - The hereditament is wholly or mainly used for charitable purposes
Component 2 can be subdivided into:
(1) The hereditament; and
(2) wholly or mainly used for charitable purposes
The first part, the hereditament, should be easy to identify as it is what appears on the Rating List.
The second part, the phrase 'wholly or mainly used for charitable purposes' and its elements requires detailed consideration, but it is helpful first to note that:
(1) Parliament enacted section 64(10) of the LGFA 1988 in relation to charity shops (though the hereditament need not be a 'shop' per se), following the decision in Oxfam v Birmingham City Council [1976] AC 126 (‘Oxfam’) - considered below. That section is a ‘treating’ provision - it requires the Court (and all other entities) to treat a hereditament as ‘wholly or mainly used for charitable purposes’ in specific circumstances. Section 64(10) provides:
'A hereditament shall be treated as wholly or mainly used for charitable purposes at any time if at the time it is wholly or mainly used for the sale of goods donated to a charity and the proceeds of sale of the goods (after any deduction of expenses) are applied for the purposes of a charity.'
This statutory provision creates a statutory exception to meaning of the words 'wholly or mainly used for charitable purposes' as defined by Oxfam. The decision in Oxfam stands, but it now stands with the section 64(10) exception carved out of it. When reading the Oxfam speeches, readers should have Parliament's later section 64(10) exception intervention, at the forefront of their minds.
(2) where the charity operates multiple sites/hereditaments, reference should be made to Nuffield Health v London Borough of Merton [2021] EWCA Civ 826 ('Nuffield'). UPDATE: see the Supreme Court decision in Merton LBC v Nuffield Health [2023] UKSC 18.
Use
Section 43(6)(a) involves the concept of ‘use’ of the hereditament on the 'day concerned'. In My Community Space v Ipswich BC [2018] EWHC 3313 (Admin) ('My Community'), Walker J labelled the ‘use’ that LGFA 1988 section 43(6)(a) (incidentally, also section 45A(2)(b)) as 'a qualifying use'[8]. Walker J then defined what the ‘a qualifying use’ means, at paragraph 49:
As regards occupation periods, under section 43(6) the qualifying use concerns the current use on a particular day....the charity must show that the current use ... involves the hereditament being “wholly or mainly used for charitable purposes (whether of that charity or of that and other charities)”.’
Use - Two Areas to Consider
In Kenya Aid Programme v Sheffield City Council [2014] QB 62 ('Kenya Aid'), the Divisional Court held that an ‘extent/amount of use’ interpretation, as well as ‘purpose of use’ interpretation, should be adopted for words ‘'wholly or mainly used for charitable purposes'. Treacy LJ in the Divisional Court in Kenya Aid said, at paragraph 35:
'The natural reading and meaning of the words used are, in my judgment, apt to cover not only consideration of the purpose of the use but also the extent or amount of the actual use. It follows therefore that I would hold that the judge was right to take account of and place weight upon the extent to which the premises were used.’[9][bold added]
In Public Safety Charitable Trust [2013] 2 EGLR 133 ('Public Safety'), Sales J held, at paragraph 39, that he had heard no good grounds to justify departing from this interpretation of section 43(6)[10a].
'Use' therefore has to be considered from these two angles/areas:
(1) 'the purpose of the use'
(2) ‘extent/amount of use’
Area 1 - The 'Purpose of the Use' - For Charitable Purposes
We have already considered the phrase 'established for charitable purposes only' in relation to the institution/organisation being a charity. The phrase 'for charitable purposes' appears again, here, in relation to the use the hereditament is put, on the day concerned. The fact that the same phrase ('for charitable purposes') arises twice, proved central to the meaning placed upon the phrase '...wholly or mainly used for charitable purposes' by the House of Lords, in the leading case of Oxfam. The Oxfam case actually concerned the meaning of the the phrase where it appeared in General Rate Act 1967, section 40(1)(a), the preceding rateably occupied charitable relief provision, but nothing seems to turn on that.
In Oxfam, Lord Cross (with whom Lord Simon, Lord Edmund-Davies and Lord Fraser agreed) said, at 135, that they were:
‘ somewhat curiously worded. No body or trust can be a charity unless its objects are exclusively charitable and if it is using premises of which it is in occupation for purposes for which it is entitled to use them and not in breach of trust it must be using them for some purpose or purposes of the charity. Yet this subsection clearly contemplates that a charity may be properly using premises which it occupies for purposes which are not 'charitable' purposes of the charity. A line has therefore to be drawn somehow or other between the user of premises for purposes which are charitable purposes of a charity within the meaning of the subsection on the one hand and their user for purposes which though purposes of the charity are not charitable purposes of the charity on the other.’
The distinction to be drawn therefore, is between:
(1) ‘the user of premises for purposes which are charitable purposes of a charity within the meaning of the subsection’ and
(2) ‘their user for purposes which though purposes of the charity are not charitable purposes of the charity'
Further, as noted by Walker J in My Community, at paragraph 51, Lord Cross's conclusion in Oxfam was that the line drawn, excludes:
‘from relief use for the purpose of getting in, raising or earning money for the charity, as opposed to user for purposes directly related to the achievement of the objects of the charity’ (146)
Walker J observed that while Lord Morris agreed with the result in Oxfam, Lord Morris in Oxfam described the distinction in types of ‘use’ in this way, at 148 to 149:
‘While care must always be taken to adhere to the statutory words and not to supplement them or to supplant them, I consider that user 'for charitable purposes' denotes user in the actual carrying out of the charitable purposes: that may include doing something which is a necessary or essential or incidental part of, or which directly facilitates, or which is ancillary to, what is being done in the actual carrying out of the charitable purpose. There may, on the other hand, be things done by a charity, or a use made of premises by a charity, which greatly help the charity, and which must in one sense be connected with the charitable purposes of the charity and which are properly within the powers of the charity, but yet which cannot be described as being the carrying out, or part of the carrying out, of the charitable purposes themselves. The nature of the user may not be sufficiently close to the execution of the charitable purpose of the charity. A charity may be entitled to occupy premises and to use them other than for its charitable purposes: only if to occupation by a charity there is added user 'for charitable purposes' will the benefit given by the section accrue.’
For Lord Morris therefore, the distinction to be drawn was between:
(1) use actually carrying out the charitable purposes, including necessary, essential or incidental parts thereof, or which directly facilitates, or is ancillary to, what is being done; and
(2) use done by the charity, or use made of premises, which greatly helps the charity, and is connected with the charitable purposes and is properly within the powers of the charity, but yet cannot be described as at least part of the carrying out, of the charitable purposes themselves. For instance, a charity may be entitled to occupy premises and to use them other than for its charitable purposes.
Consequently, only if the use (the activity) can be categorised as falling within the first type of ‘use’, will that use qualify as ‘use’ / 'qualifying use' for the purposes of satisfying the mandatory charitable relief sections.
Turning to the facts in Oxfam. The Oxfam case related to Oxfam's claim for relief in respect to its 'charity shops'. The House of Lords decided that Oxfam's use of the hereditaments as charity shops did not come within 'wholly or mainly used for charitable purposes...' and so Oxfam was not entitled to the section 40(1)(a) charity relief (now contained in section 43(6)). In other words, its use was not the first type (within the phrase 'wholly or mainly used for charitable purposes') but was the second type (outwith the phrase 'wholly or mainly used for charitable purposes'). Oxfam's use was of the second type because the shops were used mainly for the sale of clothing given to the charity in order to raise money for use in the charity's work. Whereas, had the shops been used mainly for the sale of “village handicraft” articles made in the developing world, in order to encourage village industries and provide employment in poor countries, then the shops would have been entitled to relief (note today, Oxfam's use of the hereditament would fall within Nuffield; for single charity shops - section 64(10) would apply - provided that the charity shop hereditament is (at least) mainly used to sell donated goods (should it also sell bought-in goods as well as donated goods)).
The difference being, that:
(1) raising money (which is what the Oxfam shops mainly did) was not, per se, achieving of the objects of the charity; it may have been very useful to the charity, and could be used in furtherance of the charity's aims, but raising money was not actually achieving of the objects of the charity - for instance, the prevention or relief of poverty (which I shall take to be one of Oxfam's objectives); whereas:
(2) Oxfam's aim of preventing or relieving poverty would be achieved, if the shops mainly acted as a retail outlet for products produced by poor countries.
In Kenya Aid, the Divisional Court fashioned the differentiating question, necessary to drawn out the distinction in Oxfam, as follows:
‘The question to be asked is whether the use which the charity makes of the premises is directly to facilitate the carrying out of its main charitable purposes...' (paragraph 32)
Section 2 of the 2011 Act Applies Again
As stated, section 43(6) of the LGFA 1988 itself contains the phrase 'wholly or mainly used for charitable purposes'. The use of the phrase 'for charitable purposes' here engages section 2 of the 2011 Act. The activities on the hereditament on the day concerned, must satisfy section 2(1) of the 2011 Act.
Public Benefit to Activity at the Hereditament
Part of section 2(1) is that the activity must satisfy section 4 of the 2011 Act - public benefit.
In R. (on the application of Preservation and Promotion of the Arts Ltd) v Greater Manchester Magistrates' Court Preservation and Promotion of the Arts Ltd v Birmingham City Council [2020] EWHC 2435 (Admin); [2021] R.A. 91 ('Preservation'), Jefford J considered 2 judicial reviews (though in effect, they were appeals by way of case stated), labelled (i) the Bolton Case; and (ii) the Birmingham Case, in respect to art exhibitions being put on in otherwise empty hereditaments.
In the Bolton Case, Jefford J '...focussed on the meaning of charitable purposes' (paragraph 44), in respect to which, it '...was common ground that that issue itself had to be approached by reference to sections 2 to 4 of the Charities Act 2011' (paragraph 45).
At paragraph 46, Jefford J said:
'It is part of that definition, therefore, that in order to be charitable purposes, the purposes must be ones for the public benefit. It was and is common ground that there are two elements to the public benefit requirement, namely that there must be a benefit to the public and that it must be available to a sufficiently wide section of the public.'
This mirrors what the Court of Appeal said in Leisure, Independence, Friendship and Enablement Services Ltd v Revenue and Customs Commissioners [2020] 1 W.L.R. 2828, at paragraph 84, wherein Arnold LJ (with whom, Newey LJ and Floyd LJ agreed on this point) stated, seemingly with agreement, that:
'...in R (Independent Schools Council) v Charity Commission for England and Wales (National Council for Voluntary Organisations and another intervening) [2012] Ch 214 the Upper Tribunal held at para 44 that there are two related aspects of public benefit: the first is that the nature of the purpose itself must be such as to be a benefit to the community and the second is that those who may benefit from the carrying out of the purpose must be sufficiently numerous and identified in such a manner as to constitute a section of the public.'
Further, in Preservation, Jefford J agreed with a number of propositions[10b], including that 'The public benefit must be more than de minimis' (paragraph 60(iv))
In considering whether the activity satisfies the public benefit requirement, the Court is entitled to take into account whether the activities were known about and/or accessible by the public (or a sufficiently large section of the public). In Preservation, the ratepayer criticised the DJ for having regard to '(i) to whether the events were widely advertised, popular among members of the public, readily locatable and/or actively promoted in local venues; and/or (ii) as to whether the events could have been comfortably fitted into a small space.' (paragraph 124). Jefford J rejected the ratepayer's criticism, stating, at paragraph 125, that:
'The District Judge was concerned with the issue of public benefit. Whether the events were known about and accessible by the public or a sufficiently large section of the public were matters that he was properly entitled to take into account. In an extreme case, an exhibition which no-one knows about and no-one can gain access to would not be for the public benefit. In this case, the events were barely advertised; nothing at the premises gave any indication they were being held; and access was in issue. The absence of attendees was relevant not to the success of the activity but to the absence of advertising and access.'
Area 2 - ‘Extent/Amount of use’
When determining whether the hereaditament was, on the day(s) concerned, 'wholly or mainly used for charitable purposes', as a matter of the extent/amount of use of the heraditament, the Court does not mechanically apply some spatial and temporal calculation. 'use' is not just about whether physical objects occupied a certain physial space over time. It is more nuanced than that.
In South Kesteven DC v. Digital Pipeline Ltd [2016] EWHC 101 (Admin); [2016] 1 WLR 2971 ('Digital Pipeline'), the Magistrates Court had rejected a billing authority’s application for a liability orders in relation to premises leased by the charity. On occasional and infrequent days, the charity held ‘appeal’ days to collect unwanted IT equipment from donors, face to face, for processing and onward transportation to Africa, for use in Africa by schools without computer equipment. On these ‘appeal days’, the charity used approximately 42%[11]of the available space in the premises. There were unused parts of the premises, consisting of 3 different rooms, and part of the hall sales floor that not actually used by the charity or the customers who were attracted into the hall[[12]. Elias LJ said, at paragraphs 25 to 27 of his judgment:
‘I do not accept the [billing authority’s] submission that once the floor space in use was only 42%, it was perverse for the judge to make a finding that the premises were wholly or mainly used for the charitable purpose. Nor, in my view, was there a presumption to that effect which could only be rebutted by compelling evidence. In some cases the amount of floor space in use may be minimal, depending on the nature of the charitable activity.
A charity may, for example, store books to be sent to Africa in the bookshelves around a room it leases. For much of the time the room will be empty. Even when the room is in use to shelve or remove the books, there is likely to be a portion of the middle of the floor which is virtually never in use. That would not prevent the inference that the room was used wholly for a charitable purpose, as Sales J, as he was, observed in the Public Safety Charitable Trust case: see para 19 above.[13]
Moreover, if the [billing authority’s] approach were correct, it would sometimes have arbitrary results. In this case the area notionally deemed to be not in use was a space behind the boards which the charity had erected, where the public did not go or need to go. I would accept that if the boards are placed in a way which is clearly designed to hive off a particular part of a much wider space, that would justify treating the excluded space as an area not being used for charitable purposes. But if the boards are placed away from the wall for presentation purposes, so that it can reasonably be inferred that the whole space is being used as a discrete area, albeit that not all of the space is actually in use, it is not in my view legitimate to exclude the area not actually in use. The “wholly or mainly” question should not turn on the arbitrary decision how the premises are arranged for presentational purposes provided it can fairly be said that there is a clearly demarcated area in which the services are being provided, even if they are not all actually in use. The courts have emphasised that a broad-brush approach is required - the antithesis of the approach suggested by the [billing authority].
However, I accept the [billing authority’s] second argument, namely that the judge erred in placing as much weight as he did on the fact that there was no other activity taking place on the premises. I accept that had there been another activity sharing the same premises, this would have been material to the “wholly or mainly” question. If, for example, some public body had set up an official at a desk in the same hall as the respondent charity, giving advice to members of the public, that sharing of the premises would plainly be a factor to take into account when asking whether the premises were wholly or mainly used by the charity, since it would dilute the use by the charity. But I do not think that the converse is true. If, having regard to the nature and extent of the use, the conclusion was that the premises could not properly be said to be wholly or mainly used by the charity, this conclusion could not change simply because the rest of the premises were empty. It seems to me that the judge was assuming that this could be the case and that the fact that the premises were otherwise unused was a positive factor in the charity's favour.’[14]
Factors that are not relevant to Extent of Use
Subject to one scenario - set out below, a number of factors have been identified as not relevant to determining 'extent of use' (i.e. whether the spatial and temporal extent/amount of use of the hereditament, was wholly or mainly for charitable purposes):
(1) the efficiency of the use at the hereditament; and
(2) whether use of the space and time actually used, was necessary;
In Kenya Aid, the Divisional Court, at paragraph 61, rejected as irrelevant[15] these factors. The Divisional Court rejected as irrelevant such considerations as to ‘the efficiency or otherwise of the furniture storage use at the premises, and whether it had been necessary for the charity to occupy both premises.’
Walker J noted, at paragraph 63, that Elias LJ in the Divisional Court in Digital Pipeline, confirmed this proposition[16a], when he said in Digital Pipeline, at paragraph 16:
‘if as a matter of fact the premises are being used wholly or mainly for charitable purposes, it matters not that they could have been run more efficiently or that strictly only part of the premises need have been used: see the observations of the Treacy LJ in the Kenya Aid case [at] para 36. The test has to be applied to the facts as they are, not as they might have been.’
In other words, if the charity did wholly or mainly use (spatially and time wise) the hereditament for charitable purposes, then it matters not that:
(i) the charity could have operated more efficiently, and so not used so much of the hereditament (spatially and time wise); and
(ii) using the space and for the time it did, was not necessary. It could have done without it.
Recently, Jefford J in Preservation put it as follows (after referring to (i) Kenya Aid; (ii) In re English Speaking Union Scottish Branches Educational Fund [2010] RA 227; (iii) Digital Pipeline; and (iv) Public Safety), at paragraph 92:
'What these decisions make clear is that words "wholly and mainly used for charitable purposes" are to be given a natural and common sense reading. The word "wholly" is not synonymous with "solely" so that the fact that the premises are used for no other purpose than one that is at least purportedly charitable is not sufficient. The court is entitled to have regard to the extent of use and, to fall within the statutory provisions, the use must be extensive in the sense of substantially and in real terms for the public benefit, the public benefit requirement being in itself an element of the definition of charitable purpose. That said, whether it was necessary for the charity to use so much space and whether it could have been more efficient in its use of space is not material.'[16b]
(3) success in achieving the charitable objectives. The determination on 'extent of use' is not affected by whether the charity was successful in achieving the charitable objects, when using the hereditament[17];
(4) whether, for any part of the hereditament not used for charitable purposes, it was left unused or was used, for non-charitable purposes. Where there is part of the hereditament which is not being used for charitable purposes (first type), it does not matter whether that part was left unused, or was used just for non-charitable purpose (second type) activities[18].
(5) ‘The amount of equipment provided is some indication of the extent of use.’ (paragraph 29 of Digital Pipeline); and
(6) The fact that ‘... the premises were not ideal...' and that the charity '...had taken them because “beggars cannot be choosers”, could not conceivably be material to the extent of use question.' ’ (paragraph 29 of Digital Pipeline)
The Exceptional Scenario - Where use lacks ‘the appearance, purpose or intent of’ the activity the charity purports it to be
It was stated above that there was one scenario where this categorisation of certain factors as irrelevant, does not apply.
In My Community, Walker J held that where the use of the property, made by the charity and relied upon to found the mandatory charitable relief claim, lacked ‘the appearance, purpose or intent of’ (paragraph 87)[19] the activity, the charity purported it to have:
(1) factors that would otherwise be irrelevant, became ‘highly relevant’ (paragraph 87 of My Community) to the ‘extent of use’ issue;
(2) this applies to factors such as:
(a) whether it was necessary for the charity to occupy all, spatially, the premises that it did in fact occupy, and whether it could have been more efficient with space, than it in fact was;
(b) a ratepayer, or potential ratepayers lawfully organising their affairs so as to avoid paying rates; and
(3) On the facts of My Community, the finding that use of the hereditaments lacked '...the appearance, purpose or intent of a public exhibition for charities to obtain volunteers and for the public to seek opportunities to participate and contribute to charitable volunteering...' (paragraph 87) meant that the case was within this exceptional scenario. Factors which would otherwise have been irrelevant became 'highly relevant' including factors like: [Q3.1] The number nature and size of the advertisements for the exhibitions; [Q3.2] How the [Properties] were arranged for presentational purposes during the exhibitions; [Q3.3] That the exhibitions were not stimulating or informative; [Q3.4] That the charity [was] reactive not proactive; [Q3.5] That the exhibitions were only open to the public by appointment; and [Q3.6] There was no signage to direct visitors round the building.
Walker J concluded that ‘…the qualifications … all have the result that [the charity] was not using the properties in pursuance of the carrying out of charitable purposes.’ Simply put, the finding on ‘appearance, purpose or intent' put [the charity] ‘…on the wrong side of the line.’ (Walker J, paragraph 87).
Burden of Proof
The burden of proving that the ratepayer/institution comes within section 46(3), and so is entitled to mandatory charitable relief for rateably occupied hereditaments, rests upon the ratepayer/institution. In Preservation, Jefford J held, at paragraph 54:
'It seems to me self-evident that it is [the ratepayer/institution] that ... bears the burden of proving that the days in issue fall within section 43(6)...Therefore, [the ratepayer/institution] has the burden of proving that on those days the properties were used wholly or mainly for charitable purposes...'[20].
UPDATE
See now the Supreme Court decision in Merton LBC v Nuffield Health [2023] UKSC 18, handed down on 7.6.23.
SIMON HILL © 2022-2023
BARRISTER
33 BEDFORD ROW
NOTICE: This article is provided free of charge for information purposes only; it does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by any member of Chambers or by Chambers as a whole.
[1] Where nobody is in rateable occupation of the hereditament, and so the hereditament is rateably unoccupied:
1. section 43(6) does not apply;
2. Section 45A(1) and (2) will apply.
For completeness, section 45A is entitled ‘Unoccupied hereditaments: zero-rating’ and subsections (1) and (2) provide:
'(1) Where section 45 applies in relation to a hereditament, the chargeable amount for a chargeable day is zero in the following cases.
(2) The first case is where–
(a) the ratepayer is a charity or trustees for a charity, and
(b) it appears that when next in use the hereditament will be wholly or mainly used for charitable purposes (whether of that charity or of that and other charities).’
[2] Section 43(4) of LGFA 1988 reads:
‘(4) Subject to subsections (5) the chargeable amount for a chargeable day shall be calculated in accordance with the formula-
(A×B)/(C)’
[3] Section 43(5) of LGFA 1988 reads:
‘Where subsection (6) below applies the chargeable amount for a chargeable day shall be calculated in accordance with the formula-
(A×B)/(C×5)’
[4a] Section 37 of the Charities Act 2011 is entitled ‘Effect of registration’ and provides:
‘(1) An institution is, for all purposes other than rectification of the register, conclusively presumed to be or to have been a charity at any time when it is or was on the register.
(2) For the purposes of subsection (1) an institution is to be treated as not being on the register during any period when the entry relating to it is in suspense under section 36(4).'
In Derby Teaching Hospitals NHS Foundation Trust v Derby City Council [2020] Ch 586 (‘Derby Teaching’), Morgan J said at paragraph 50:
‘The 2011 Act provides for charities to be registered in a register maintained by the Charity Commission. Subject to certain exceptions which do not apply in this case, a charity must be registered: section 30. Where a charity is required to be registered the trustees of the charity must apply to the Charity Commission for registration: section 31. An institution which is registered as a charity is conclusively presumed to be a charity: section 37. However, non-registration as a charity does not prevent an institution establishing that it is nonetheless a charity.’
To illistrate that non-registration as a 'charity' with the Charity Commission, does not debar the institutions/organisations from claiming to be a 'charity' for business rates purposes, in Derby Teaching case, the institutions/organisations (i.e. the NHS Foundation Trusts): (1) claimed in the business rates case, that they were each a charity, so as to qualify for the s.43(6) charity relief; but (2) had not registered as a charity with the Charity Commission. Morgan J said:
‘None of the foundation trusts in this case has ever applied to be registered as a charity in relation to their main activities (apart from any registration of specific charitable trusts where a foundation trust is the corporate trustee).’
To provide some of the statutory provisions referred to be Morgan J in Derby Teaching:
Part 4 of the 2011 Charities Act 2011 is called 'Registration and Names of Charities': The Chapter is called 'The 'Register'. Section 29 is entitled ’The register’ and reads:
'(1) There continues to be a register of charities, to be kept by the Commission in such manner as it thinks fit.
(2) The register must contain-
(a) the name of every charity registered in accordance with section 30, and
(b) such other particulars of, and such other information relating to, every such charity as the Commission thinks fit.
(3) In this Act, except in so far as the context otherwise requires, “the register” means the register of charities kept under this section and “registered” is to be read accordingly.’
The next Chapter is entitled 'Charities required to be registered' and contains sections 30 to 33.
Section 30 is entitled ‘Charities required to be registered: general’ and reads:
'(1) Every charity must be registered in the register unless subsection (2) applies to it.
(2) The following are not required to be registered-;
(a) an exempt charity (see section 22 and Schedule 3),
(b) a charity which for the time being-
(i) is permanently or temporarily excepted by order of the Commission, and
(ii) complies with any conditions of the exception, and whose gross income does not exceed £100,000,
(c) a charity which for the time being-
(i) is, or is of a description, permanently or temporarily excepted by regulations made by the Secretary of State, and
(ii) complies with any conditions of the exception, and whose gross income does not exceed £100,000, and
(d) a charity whose gross income does not exceed £5,000.
A charity within-
(a) subsection (2)(b) or (c), or
(b) subsection (2)(d),
must, if it so requests, be registered in the register.
(4) In this section any reference to a charity's gross income is to be read, in relation to a particular time -
(a) as a reference to the charity's gross income in its financial year immediately preceding that time, or
(b) if the Commission so determines, as a reference to the amount which the Commission estimates to be the likely amount of the charity's gross income in such financial year of the charity as is specified in the determination.'
Section 31 is entitled ‘Restrictions on extending the range of excepted charities etc.’ and reads:
'(1) No order may be made under section 30(2)(b) so as to except any charity that was not excepted immediately before 31 January 2009.
(2) Subject to subsection (3), no regulations may be made under section 30(2)(c) so as to except any charity or description of charities that was not excepted immediately before 31 January 2009.
(3) Such regulations must be made under section 30(2)(c) as are necessary to secure that any institution ceasing to be an exempt charity by virtue of an order made under section 23 is excepted under section 30(2)(c) (subject to compliance with any conditions of the exception and the financial limit mentioned in section 30(2)(c)).
(4) Subsection (1) does not prevent an order which-
(a) was in force immediately before 31 January 2009, and
(b) has effect (by virtue of paragraph 4 of Schedule 8) as if made under section 30(2)(b), from being varied or revoked.
(5) Subsection (2) does not prevent regulations which-
(a) were in force immediately before 31 January 2009, and
(b) have effect (by virtue of paragraph 4 of Schedule 8) as if made under section 30(2)(c), from being varied or revoked.'
Section 34 of the 2011 Act is entitled 'Removal of charities from register' and reads:
'(1) The Commission must remove from the register-
(a) any institution which it no longer considers is a charity, and
(b) any charity which has ceased to exist or does not operate.
(2) If the removal of an institution under subsection (1)(a) is due to any change in its trusts, the removal takes effect from the date of the change.
(3) A charity which is for the time being registered under section 30(3) (voluntary registration) must be removed from the register if it so requests.'
Section 35 of the 2011 Act is entitled 'Duties of trustees in connection with registration' and reads:
'(1) If a charity required to be registered by virtue of section 30(1) is not registered, the charity trustees must-
(a) apply to the Commission for the charity to be registered, and
(b) supply the Commission with the required documents and information.
(2) The required documents and information are-
(a) copies of the charity's trusts or (if they are not set out in any extant document) particulars of them,
(b) such other documents or information as may be prescribed by regulations made by the Secretary of State, and
(c) such other documents or information as the Commission may require for the purposes of the application.
(3) If an institution is for the time being registered, the charity trustees (or the last charity trustees) must(a) notify the Commission if the institution ceases to exist, or if there is any change in its trusts or in the particulars of it entered in the register, and
(b) so far as appropriate, supply the Commission with particulars of any such change and copies of any new trusts or alterations of the trusts.
(4) Nothing in subsection (3) requires a person-
(a) to supply the Commission with copies of schemes for the administration of a charity made otherwise than by the court,
(b) to notify the Commission of any change made with respect to a registered charity by such a scheme, or
(c) if the person refers the Commission to a document or copy already in the Commission's possession, to supply a further copy of the document.'
[4b] Westlaw publish a Practice Note where further information can be found. It is entitled: Practice note, What is a charity?: Legal structures for charity: an overview, and can be accessed (subject to a subscription), here.
[5] In Derby Teaching Hospitals NHS Foundation Trust v Derby City Council [2020] Ch. 586 (‘Derby Teaching’), Morgan J gave a helpful survey of the Charities Act 2011, from paragraphs 43 to 50, under the heading 'The legislation as to charities'
‘43. Charities in England and Wales are subject to the Charities Act 2011 (“the 2011 Act”). Sections 1 to 4 of the 2011 Act contain the key definitions of “charity”, “charitable purpose” and “the public benefit requirement”.
44. Section 1 of the 2011 Act provides:
“Meaning of ‘charity’
“(1) For the purposes of the law of England and Wales, ‘charity’ means an institution which - (a) is established for charitable purposes only, and (b) falls to be subject to the control of the High Court in the exercise of its jurisdiction with respect to charities.
“(2) The definition of ‘charity’ in subsection (1) does not apply for the purposes of an enactment if a different definition of that term applies for those purposes by virtue of that or any other enactment.”
45. There is an issue in the present case as to whether the definition of “a charity” in section 67(10) of the 1988 Act is a different definition of “charity” for the purposes of section 1(2) of the 2011 Act.
46. Section 2 of the 2011 Act provides:
“Meaning of ‘charitable purpose’
“(1) For the purposes of the law of England and Wales, a charitable purpose is a purpose which - (a) falls within section 3(1), and (b) is for the public benefit (see section 4).
“(2) Any reference in any enactment or document (in whatever terms) - (a) to charitable purposes, or (b) to institutions having purposes that are charitable under the law relating to charities in England and Wales, is to be read in accordance with subsection (1).
“(3) Subsection (2) does not apply where the context otherwise requires.
“(4) This section is subject to section 11 (which makes special provision for Chapter 2 of this Part onwards).”
47. It is agreed that the reference in section 67(10) of the 1988 Act to “charitable purposes” is a reference in an enactment within section 2(2) of the 2011 Act so that that reference is to be read in accordance with section 2(1) of the 2011 Act (assuming that the definition in section 67(10) of the 1988 Act is the relevant definition).
48. Section 3 of the 2011 Act relevantly provides:
“Descriptions of purposes
“(1) A purpose falls within this subsection if it falls within any of the following descriptions of purposes- (d) the advancement of health or the saving of lives; (j) the relief of those in need because of youth, age, ill-health, disability, financial hardship or other disadvantage; (m) any other purposes- (i) that are not within paragraphs (a) to (l) but are recognised as charitable purposes by virtue of section 5 (recreational and similar trusts, etc) or under the old law, (ii) that may reasonably be regarded as analogous to, or within the spirit of, any purposes falling within any of paragraphs (a) to (l) or sub-paragraph (i), or (iii) that may reasonably be regarded as analogous to, or within the spirit of, any purposes which have been recognised, under the law relating to charities in England and Wales, as falling within sub-paragraph (ii) or this sub-paragraph.
“(2) In subsection (1)-(b) in paragraph (d), ‘the advancement of health’ includes the prevention or relief of sickness, disease or human suffering, ... (e) Paragraph (j) includes relief given by the provision of accommodation or care to the persons mentioned in that paragraph, and
“(3) Where any of the terms used in any of paragraphs (a) to (l) of subsection (1), or in subsection (2), has a particular meaning under the law relating to charities in England and Wales, the term is to be taken as having the same meaning where it appears in that provision.
“(4) In subsection (1)(m)(i), ‘the old law’ means the law relating to charities in England and Wales as in force immediately before 1 April 2008.”
49. Section 4 of the 2011 Act provides:
“The public benefit requirement
“(1) In this Act ‘the public benefit requirement’ means the requirement in section 2(1)(b) that a purpose falling within section 3(1) must be for the public benefit if it is to be a charitable purpose.
“(2) In determining whether the public benefit requirement is satisfied in relation to any purpose falling within section 3(1), it is not to be presumed that a purpose of a particular description is for the public benefit.
“(3) In this Chapter any reference to the public benefit is a reference to the public benefit as that term is understood for the purposes of the law relating to charities in England and Wales.
“(4) Subsection (3) is subject to subsection (2).”
50. The 2011 Act provides for charities to be registered in a register maintained by the Charity Commission. Subject to certain exceptions which do not apply in this case, a charity must be registered: section 30. Where a charity is required to be registered the trustees of the charity must apply to the Charity Commission for registration: section 31. An institution which is registered as a charity is conclusively presumed to be a charity: section 37. However, non-registration as a charity does not prevent an institution establishing that it is nonetheless a charity. None of the foundation trusts in this case has ever applied to be registered as a charity in relation to their main activities (apart from any registration of specific charitable trusts where a foundation trust is the corporate trustee).'
[6] Charities Act 2011, sections 2((3) and 2(4) provide:
‘(3) Subsection (2) does not apply where the context otherwise requires.
“(4) This section is subject to section 11 (which makes special provision for Chapter 2 of this Part onwards).’
Charities Act 2011, section 11 is in Part 1 of the Act, Chapter 2. Chapter is entitled 'Special Provisions for this Act'. Section 11 is entitled 'Charitable purposes' and reads:
'In the rest of this Act, “charitable purposes” means, except in so far as the context otherwise requires, purposes which are exclusively charitable purposes (as defined by section 2(1)).'
[7a] Charities Act 2011, subsections 3(2) to 3(4) provide:
'(2) In subsection (1) -
(a) in paragraph (c), “religion” includes -
(i) a religion which involves belief in more than one god, and
(ii) a religion which does not involve belief in a god,
(b) in paragraph (d), “the advancement of health” includes the prevention or relief of sickness, disease or human suffering,
(c) paragraph (e) includes -
(i) rural or urban regeneration, and
(ii) the promotion of civic responsibility, volunteering, the voluntary sector or the effectiveness or efficiency of charities,
(d) in paragraph (g), “sport” means sports or games which promote health by involving physical or mental skill or exertion,
(e) paragraph (j) includes relief given by the provision of accommodation or care to the persons mentioned in that paragraph, and
(f) in paragraph (l), “fire and rescue services” means services provided by fire and rescue authorities under Part 2 of the Fire and Rescue Services Act 2004.
(3) Where any of the terms used in any of paragraphs (a) to (l) of subsection (1), or in subsection (2), has a particular meaning under the law relating to charities in England and Wales, the term is to be taken as having the same meaning where it appears in that provision.
(4) In subsection (1)(m)(i), “the old law” means the law relating to charities in England and Wales as in force immediately before 1 April 2008.'
[7b] To consider a similar approach taken to the Charities Act 1960 (now obsolete). In the Charities Act 1960:
Section 4(1): 'There shall be a register of charities which shall be established and maintained by the commissioners and in which there shall be entered such particulars as the commissioners may from time to time determine of any charity there registered.'
Section 5(3): 'An appeal against any decision of the commissioners to enter or not to enter an institution in the register of charities,...may be brought in the High Court by the Attorney-General-, or by the persons who are or claim to be the charity trustees of the institution, . .'
Section 45(1): 'In this Act, except in so far as the context otherwise requires,' charity' means any institution, corporate or not, which is established for charitable purposes and is subject to the control Of the High Court in the exercise of the court's jurisdiction with respect to charities; ...'
Section 46: 'In this Act, except in so far as the context otherwise requires, 'charitable purposes'; means purposes which are exclusively charitable according to the law of England and Wales..."
In Incorporated Council of Law Reporting for England and Wales v AG [1971] 1 Ch.73 ('ICLR'), the Incorporated Council of Law Reporting for England and Wales (the 'Institution') sought to be registered as a charity with the commissioners. The commissioners refused, and the Institution appealed to the High Court successfully. On a further appeal, to the Court of Appeal, the Court of Appeal considered (amongst other things) the question: whether the Institution was established for purposes which are exclusively charitable according to the law of England and Wales (83) - effectively the same test as 'established for charitable purposes only' in section 67(10) of the LGFA 1988.
Russell LJ in ICLR said, at 84B:
'In order to see for what purposes the association was established and whether those purposes are exclusively charitable, attention must be focused upon its memorandum and articles of association, bearing in mind, of course, that purposes merely ancillary to a main charitable purpose, which if taken by themselves would not be charitable, will not vitiate the claim of an institution to be established for purposes that are exclusively charitable. Hereunder the objects clause in the memorandum must plainly play the leading role.'
Buckley LJ in ICLR said, at 99:
'To ascertain for what purposes the council was established one must refer to its memorandum of association and to that alone. It is irrelevant to inquire what the motives of the founders were, or how they contemplated or intended that the council should operate, or how it has in fact operated: see Hunter v. Attorney-General [1899] A.C, 309; Bowman v. Secular Society Ltd. [1917] A.C. 406; Keren Kayemeth Le Jisroel Ltd. v. Inland Revenue Commissioners [1931] 2 K.B. 465; [1932] A.C. 650 and Tennant Plays Ltd. v. Inland Revenue Commissioners [1948] 1 All E.R. 506...'
The caveat to this however, is that:
'But in order to determine whether an object, the scope of which has been ascertained by due processes of construction, is a charitable purpose it may be necessary to have regard to evidence to discover the consequences of pursuing that object. It would be immediately evident that a body established to promote the Christian religion was established for a charitable purpose, whereas in the case of a body established to propagate a particular doctrine it might well be necessary to consider evidence about the nature of the doctrine to decide whether its propagation would be a charitable activity.'
[7c] In Incorporated Council of Law Reporting for England and Wales v AG [1971] 1 Ch. 73, Sachs LJ agreed with the submission, at 91A, that:
'...the courts cannot look at the motives of the founders in order to show the purposes of an institution at any rate, when those purposes as otherwise ascertained might be shown not to be charitable,
[7d] In Incorporated Council of Law Reporting for England and Wales v AG [1971] 1 Ch.73, Buckley LJ said, at 104A
'Although the objects of the council are commercial in the sense that the council exists to publish and sell its publications, they are unselfregarding. The members are prohibited from deriving any profit from the council's activities, and the council itself, although not debarred from making a profit out of its business, can only apply any such profit in the further pursuit of its objects. The council is consequently not prevented from being a charity by reason of any commercial element in its activities.'
For this reason, and others, Buckley LJ concluded, at 104B
'I therefore reach the conclusion that the council is a body established exclusively for charitable purposes and is entitled to be registered under the Act of 1960.'
[7e] In Incorporated Council of Law Reporting for England and Wales v AG [1971] 1 Ch.73 ('ICLR'), in relation to the Charities Act 1960 (now obsolete) Sachs LJ stated, at 91D, that:
'...to my mind it is the foundation date that matters when considering whether an institution is established for charitable purposes.'
An analogy can be drawn between this and with the law of contract. In Whitworth Street Estates (Manchester) Ltd v James Miller & Partners Ltd [1970] A.C. 583('Whitworth'), the House of Lords (hearing a Scottish case but deciding that English Law applied to the contract; the arbitration governed by the curial rules of Scotland), Lord Reid said, at 603:
'...it is now well settled that it is not legitimate to use as an aid in the construction of the contract anything which the parties said or did after it was made. Otherwise one might have the result that a contract meant one thing the day it was signed, but by reason of subsequent events meant something different a month or a year later.'
See Keren Kayemeth Le Jisroel Ltd v Inland Revenue Commissioners [1931] 2 KB 465, as per Lawrence LJ, at 484.
On the formation of the contract, Lord Wilberforce in Whitworth, at 615 said:
'Unless it were to found an estoppel or a subsequent agreement, I do not think that subsequent conduct can be relevant to this question.'
Returning to ICLR, Sachs LJ said, at 91D:
'Whilst appreciating what has been said as to the courts not being permitted, where plain language is used in a charter or memorandum, to admit extrinsic evidence as to its construction, it is yet plain from the course adopted by the courts in many cases that they are entitled to and do look at the circumstances in which the institution came into existence and at the sphere in which it operates to enable a conclusion to be reached on whether its purposes are charitable. Such matters were likewise regularly taken into account over the 117 years of the operation of the Scientific Societies Act 1843, when the issue was whether buildings belonged " to any society instituted for purposes of science, literature or the fine arts exclusively."
The necessity for this course is all the more obvious when the purposes of an ancient institution become the subject of examination, remembering that if it started as a charity it so remains. An example of the above approach is to be found in Smith v. Kerr [1900] 2 Ch. 511; [1902] 1 Ch. 774 (the Clifford's Inn case) where at first instance Cozens-Hardy J. fully examined the circumstances affecting Clifford's Inn, and Sir Richard Collins M.R. on appeal followed the same course, to ascertain the purpose to which the funds were to be applied. (The question whether in fact it has applied or is applying some of its funds to non-charitable purposes is, of course, a separate issue which arises when tax or rate exemptions are under consideration.)'
[7f] In Incorporated Council of Law Reporting for England and Wales v AG [1971] 1 Ch.73 ('ICLR'), in relation to the Charities Act 1960 (now obsolete) and whether the Council publishing The Law Reports was a charity, Buckley LJ stated, at 100C, that:
'...if a body is established for a charitable purpose, it will be not the less a charity because the pursuit of that purpose will or may confer incidental benefits upon the members of a profession: see Royal College of Surgeons of England v. National Provincial Bank Ltd. [1952] A.C. 631 and Royal College of Nursing v. St. Marylebone Borough D Council [1959] 1 W.L.R. 1077.'
Later Buckley LJ said in ICLR, at 103F:
'The fact that the council's publications can be regarded as a necessary part of a practising lawyer's equipment does not prevent the council from being established exclusively for charitable purposes, The practising lawyer and the judge must both be lifelong students in that field of scholarship for the study of which The Law Reports provide essential material and a necessary service. The benefit which the council confers upon members of the legal profession in making accurate reports available is that it facilitates the study and ascertainment of the law. It also helps the lawyer to earn his livelihood, but that is incidental to or consequential on the primary scholastic function of advancing and disseminating knowledge of the law, and does not detract from the exclusively charitable character of the council's objects: compare Royal College of Surgeons of England v. TT National Provincial Bank Ltd. [1952] A.C. 631 and Royal College of Nursing v. St. Marylebone Borough Council [1959] 1 W.L.R. 1077.
The service which publication of The Law Reports provides benefits not only those actively engaged in the practice and administration of the law, but also those whose business it is to study and teach law academically, and many others who need to study the law for the purposes of their trades, businesses, professions or affairs. In all these fields, however, the nature of the service is the same: it enables the reader to study, and by study to acquaint himself with and instruct himself in the law of this country. There is nothing here which negatives an exclusively charitable purpose.'
[8] In My Community Space v Ipswich BC [2018] EWHC 3313 (Admin), Walker J defined what the ‘a qualifying use’ means, in a longer passage, at paragraph 49:
‘As regards occupation periods, under section 43(6) the qualifying use concerns the current use on a particular day. As regards empty periods, under section 45A(2) the qualifying use concerns what appears to be the position when the hereditament will next be in use. Materially identical words are used as to what that qualifying use requires: the charity must show that the current use or what appears to be the next future use, as the case may be, involves the hereditament being “wholly or mainly used for charitable purposes (whether of that charity or of that and other charities)”.’
[9] The full statement of the law, given by Treacy LJ in the Divisional Court in Kenya Aid Programme v Sheffield City Council [2014] Q.B. 62, at paragraph 35, was:
‘In my judgment there is force in the difference of emphasis which [Billing Authority’s counsel] highlights between “occupation” in section 43(1) and “use” in section 43(6), and also in her submission that the qualifying adverbs “wholly” and “mainly” are important in looking at the context of the use. I would hold that there is no reason for limiting the ambit of the phrase in the way contended for by the charity. As was pointed out in the English Speaking Union case and again in argument before us, the charity's construction would substitute the word “solely” for the word “wholly”. I see no reason why the statute should be thus narrowly confined. The natural reading and meaning of the words used are, in my judgment, apt to cover not only consideration of the purpose of the use but also the extent or amount of the actual use. It follows therefore that I would hold that the judge was right to take account of and place weight upon the extent to which the premises were used.
[10a] In Public Safety Charitable Trust [2013] 2 EGLR 133 ('Public Safety'), Sales J said at paragraph 34:
'In the context of this legislation and having regard to the language used, 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 (i.e. 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.’
Dealing with the strongest argument in favour of excluding ‘extent of use’ interpretation completely, and for adopting only the ‘purpose of use’ interpretation, Sales J said in Public Safety, at paragraphs 36 and 37:
‘To my mind, the strongest of the arguments put forward by [counsel for the charity] against this construction of [section 43(6)] was that the extent of use interpretation would strip the word “wholly” of all sensible meaning in the context of that provision. He submitted that on the extent of use interpretation the issue would always resolve into a question of whether the hereditament is “mainly used” for charitable purposes, since buildings would typically be left unused at night, or areas within them would not be in actual use all the time. If that were right, and the word “wholly” were rendered meaningless upon this interpretation, it could be a strong textual indicator in favour of the alternative, purpose of use interpretation.
However, I do not think that the argument can be sustained. A building may fairly and properly be described as being wholly used for a particular purpose even though not every square metre of floor space is in constant use all the time. For instance, the whole of a room used as an office can be described as being wholly used as an office, even though it is spacious and not crammed with people working. I also think it can fairly be described as being wholly used as an office, albeit it is closed and left vacant during the night. Even if that is not right, it is possible to imagine buildings which indeed are in constant use the whole time for charitable purposes (e.g. a permanent soup kitchen to feed the destitute or an office staffed 24 hours a day by the Samaritans to be available to give advice to people who feel suicidal). So it cannot be concluded that the word “wholly” in the phrase “wholly or mainly used for charitable purposes” has no meaning or proper function if the extent of use interpretation of section 43(6) is adopted.’
In South Kesteven DC v. Digital Pipeline Ltd [2016] EWHC 101 (Admin); [2016] 1 WLR 2971, Elias LJ noted at paragraph 13, without criticism, that it was common ground between the parties in that case, that:
‘the test is not whether the activity being conducted on the premises is wholly or mainly charitable. Instead, the test is whether the premises are being used wholly or mainly for charitable activity.
[10b] In R. (on the application of Preservation and Promotion of the Arts Ltd) v Greater Manchester Magistrates' Court Preservation and Promotion of the Arts Ltd v Birmingham City Council [2020] EWHC 2435 (Admin); [2021] R.A. 91 ('Preservation'), Jefford J said, at paragraph 61, that 'Those seem to me to be entirely correct statements of principle...' after stating, at paragraph 60:
[Counsel for Bolton Billing Authority - in the Bolton Case] submitted that the principles of law relevant to this issue are to be derived from R (Independent Schools Council) v Charity Commission for England and Wales) [2011] UKUT 421 (TCC); [2012] Ch 214. The case concerned sections 1 to 3 of the Charities Act 2006 which were, so far as material, in like terms to sections 2 to 4 of the 2011 Act. So far as relevant, [Counsel for Bolton Billing Authority] derived the following principles from the Independent Schools case:
(i) Sections 2 to 4 of the Charities Act 2011 provide an exhaustive code for the definition of a charity and supersede the pre-Charities Act 2006 law except to the extent that the pre-existing public benefit requirement remains. The effect of section 3(2) is to preclude the making of a presumption about public benefit (at [72]) but the nature of the requirement is not otherwise changed.
(ii) The public benefit requirement requires both that the nature of the purpose was such as to benefit the community and that those who might benefit were sufficiently numerous and identified in such a manner as to constitute "a section of the public" (at [44] and [53]).
(iii) There is no presumption that a purpose of any particular description within section 3(1) meets the public benefit requirement. The court must form its own view on the evidence. It may be permissible for the court to take account of its own view that the terms of the trust (as in that case) speak for themselves (at [67]) if there is nothing to displace that view; the court may take account of decided cases (but only if strictly binding); and the court may take account of facts of which it can take judicial notice (see [60]-[62], [67] and [68].)
(iv) The public benefit must be more than de minimis (at [215] – [216])'
[11] A finding made in South Kesteven DC v. Digital Pipeline Ltd [2016] EWHC 101 (Admin) [2016] 1 WLR 2971, at paragraph 8 of the case stated document. The spatial figure of 42% emanated from the billing authority’s revenue recovery officer’s evidence.
[12] Elias LJ in South Kesteven DC v. Digital Pipeline Ltd [2016] EWHC 101 (Admin) [2016] 1 WLR 2971 said, at paragraph 8:
‘[the officer] visited the site on three occasions and gave evidence that the unused parts of the premises consisted in effect of four different elements: the mezzanine floor referred to by the judge; a similarly sized downstairs storage area which matched it; a reception/kitchen area; and that part of the sales floor which he considered was not actually used by the charity or the customers who were attracted into the hall. The first three areas could be seen to be distinct and separate from the sales hall itself, and no activities were going on in those areas. The fourth element, which I shall call the “notional unused area” was not marked out in any way but was the witness's own assessment of that part of the hall which was not in fact used by anyone in connection with the charitable activities.’
[13] Footnote added (not in original quote). The reference to 'paragraph 19 above' is to paragraph 19 of the (same) judgment in South Kesteven DC v. Digital Pipeline Ltd [2016] EWHC 101 (Admin) [2016] 1 WLR 2971 ('Digital Pipeline'). In paragraph 19 of Digital Pipeline, last sentence, Elias LJ quotes from Public Safety Charitable Trust case [2013] 2 EGLR 133. The last sentence reads:
In the Public Safety Charitable Trust case [2013] 2 EGLR 133, para 34, Sales J said that the exemption: “should depend upon the charity actually making extensive use of the premises for charitable purposes rather than leaving them mainly unused .” (Emphasis added.) [bold is for emphasis; emphasis in original is in italics]
[14] For completeness, in Kenya Aid Programme v Sheffield City Council [2014] Q.B. 62, paragraph 28 reads:
‘If the judge's conclusion had been clear cut, I would not have considered this error to be material. But it is not self-evident on the facts whether a judge would find that the premises were used wholly or mainly for a charitable purpose or not. I would not go so far as the appellant in describing this factor as “decisive” but it plainly was seen by the judge as a matter of some weight. In those circumstances I cannot be sure that the decision would necessarily have been the same even if this factor had been ignored. Accordingly I would on this ground quash the decision and remit the matter to the judge.’
[15] Walker J in My Community Space v Ipswich BC [2018] EWHC 3313 (Admin), summarised at paragraph 56, the Divisional Court in Sheffield City Council v Kenya Aid Programme [2014] QB 62 ('Kenya Aid') as having:
‘accepted a submission that the district judge had been entitled to look at the whole of the evidence before him and decide on a broad basis whether the premises were being used wholly or mainly for charitable purposes. In that regard the district judge had been correct to take into account of the extent to which the premises were used. However the district judge had also taken into account the efficiency or otherwise of the furniture storage use at the premises, and whether it had been necessary for the charity to occupy both premises. At paragraph 61 of his judgment Treacy LJ held that both these considerations (efficiency or otherwise of the storage, and necessity of using both premises) were irrelevant. In those circumstances the appeal was allowed and remitted to the district judge for further consideration.’
Jefford J in R. (on the application of Preservation and Promotion of the Arts Ltd) v Greater Manchester Magistrates' Court Preservation and Promotion of the Arts Ltd v Birmingham City Council [2020] EWHC 2435 (Admin); [2021] R.A. 91, summarised Kenya Aid, at paragraphs 88 - 89, as follows:
'In giving the judgment of the Divisional Court, Treacy LJ considered that the approach in the English Speaking Union case, requiring the court to consider on a broad basis whether the premises were being used wholly or mainly for charitable purposes, was a tenable approach (at [34]). At [35], he continued: "…. As was pointed out in the English Speaking Union case and again in argument before us, the charity's construction would substitute the word "solely" for the word "wholly". I see no reason why the statute should be thus narrowly confined. The natural reading and meaning of the words used are, in my judgment, apt to cover not only consideration of the purpose of the use but also the extent or amount of the actual use. It follows therefore that I would hold that the judge was right to take account of and place weight upon the extent to which the premises were used."
However, he regarded both the inefficiency of the storage and the issue of the necessity of using both units to be irrelevant considerations. He observed that, in this context, questions of inefficiency seemed to be closely related to questions of necessity.'
The reference to English Speaking Union case, is a reference to In re English Speaking Union Scottish Branches Educational Fund [2010] RA 227 ('English Speaking Union'). In English Speaking Union, at paragraph 11, Lord Bonomy said this:
'However, counsel's submission, that [the judge's] approach of concentrating exclusively on the question of "use" leads to the conclusion that, in all cases where a building is used for a single purpose, that sole use, however limited in extent within the building, is that for which the building is "wholly used", is unpersuasive. "Wholly" in section 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.'
Separately, Jefford J in Preservation said, at paragraph 120:
'[the ratepayer] argued that it was not incumbent on it to offer any explanation for its property portfolio and that the necessity or efficiency of its use of premises was not a material factor to the issue of whether the premises were wholly or mainly used for charitable purposes. That seems to me to miss the point that the District Judge was making which was twofold. Firstly, the extensive property holding comprising multiple units in three large properties in Birmingham called into question whether the premises were being used wholly or mainly for charitable purposes...Secondly, although that question might have been answered by evidence as to the use that was being made of the premises, that evidence was limited to that of [the ratepayer's director] which he considered unsatisfactory.'
In a similar vein, Jefford J in Preservation rejected the submission that the DJ had been wrong to refer to the ratepayer's state of the balance sheet (which showed little assets). At paragraph 123, Jefford J said:
'The accounts may not have been directly relevant to the use of the premises but they provided some evidence of lack of activity.'
[16a] Elias LJ in South Kesteven DC v. Digital Pipeline Ltd [2016] EWHC 101 (Admin) [2016] 1 WLR 2971 said, at paragraph 12, that: ‘It is common ground that they establish the following propositions'. - meaning, common ground between the parties.
He said this, without himself disputing the accuracy of these propositions.
[16b] This however does not mean the Court cannot comment on whether the hereditament is used sparcely or not. In R. (on the application of Preservation and Promotion of the Arts Ltd) v Greater Manchester Magistrates' Court Preservation and Promotion of the Arts Ltd v Birmingham City Council [2020] EWHC 2435 (Admin); [2021] R.A. 91, Jefford J considered a criticism of the 1st instance DJ having described employed the expression "very sparse use". At paragraph 118:
'The judge was entitled to make a broad assessment of whether the premises were being used, on the days of the events, wholly or mainly for charitable purposes and that included a broad assessment of the extent of use. His reference to sparse use captures the conclusion, on the evidence, that the premises were barely used at all.'
[17] In My Community Space v Ipswich BC [2018] EWHC 3313 (Admin)('My Community'), Walker J rejected a possible interpretation of a passage from South Kesteven DC v. Digital Pipeline Ltd [2016] EWHC 101 (Admin) [2016] 1 WLR 2971, that it is relevant to the extent of use, whether the charity was successful or not in bringing in potential donors. At paragraph 86, Walker J in My Community stated that:
‘Elias LJ in that passage is simply pointing out that if the use meets the test laid down by Lord Morris Oxfam then success in achieving the charitable objects does not matter.'
[18] In South Kesteven DC v. Digital Pipeline Ltd [2016] EWHC 101 (Admin) [2016] 1 WLR 2971, Elias LJ confirmed that the fact that the premises were not being used for any other purpose, was not relevant to ‘extent of use’, at paragraph 30 of his judgment:
‘the district judge was not entitled to take into account as a factor, when assessing whether the premises were wholly or mainly used for a charitable purpose, the fact that the premises were not being used for any other purpose.’
In My Community Space v Ipswich BC [2018] EWHC 3313 (Admin), Walker J noted, at paragraph 82(3):
'As recorded by Elias LJ in Digital Pipeline at paragraph 16, the parties in Digital Pipeline agreed:
16. if as a matter of fact the premises are being used wholly or mainly for charitable purposes, it matters not that they could have been run more efficiently or that strictly only part of the premises need have been used: see the observations of the Tracey LJ in the Kenya Aid case [at] para 36. The test has to be applied to the facts as they are, not as they might have been.'
[19] In considering the impact of Walker J’s decision in My Community, it pays to read the whole of Walker J’s key passage in full. This key passage is at paragraph 87 ('MCS' is the ratepayer):
‘If, as the judge held, this was a case where the use of the properties by MCS did not have the appearance, purpose or intent of a public exhibition for charities to obtain volunteers and for the public to seek opportunities to participate and contribute to charitable volunteering, then it seems to me that the qualifications I have cited above all have the result that MCS was not using the properties in pursuance of the carrying out of charitable purposes. MCS criticised the judge for failing to find what it was that she considered to bes (sic) the purposes of the exhibitions. Here, as it seems to me, MCS enters inadmissible territory. For the reasons given above, I have held that the judge's finding as to lack of appearance, purpose or intent puts MCS on the wrong side of the line: it has the consequence that the qualifications I have cited above are engaged, and the prohibition on taking account of efficiency or necessity does not apply. Thus the Q3 factors, which in the ordinary case would not be relevant, become factors which are highly relevant. It necessarily follows that the answer to Q3 is that the judge did not err in law.’
For completeness, on the ‘inadmissible territory’ aspect to Walker J’s reasoning in paragraph 87, MCS had limited the scope of its case stated appeal to only 6 specific factors the DJ ought not to have taken into account in her decision. It was outwith the scope of the appeal, for MCS to complain that the DJ had not made a particular finding as to what, in her judgment, was the actual purpose of the exhibitions. Walker J said, at paragraph 88:
‘This leaves no room for a complaint that the judge should have made a finding as to what the actual purpose of the exhibitions was. In Q3 MCS has confined its challenge to the relevance of the six specified Q3 factors. It does not raise any issue as to whether the law requires the judge to make an express finding of what the actual purposes were.’
[20] In R. (on the application of Preservation and Promotion of the Arts Ltd) v Greater Manchester Magistrates' Court Preservation and Promotion of the Arts Ltd v Birmingham City Council [2020] EWHC 2435 (Admin); [2021] R.A. 91, in the Birmingham Case, the burden of proof and amount of evidence tendered, proved critical.
At paragraph 106, Jefford J referred to the 1st instance judge's decision, as a decision based on:
'...the fact that, whatever [the ratepayer's] expressed purposes, there was, in his judgment insufficient evidence that the premises were used or were to be used wholly or mainly for charitable purposes.'
At paragraph 113, Jefford J said
'...he had no persuasive evidence of any charitable activity actually taking place on the premises....That, to my mind, discloses no misunderstanding of the law and involves an evaluation of the evidence,'
At paragraph 135, Jefford J said:
'There was, in my judgment, no error of law in the District Judge's reasoning and the answer to the first question posed in the case stated is that the judge was entitled to reach the conclusion that he did. The District Judge was entitled to reach that conclusion both on the issue of failure to meet the public benefit requirement and on the issue of extent of use.'