Could a charity claim business rates relief on a gym whose membership fees excluded people of modest means? The answer depended on two different questions. Public benefit was assessed by looking at Nuffield Health’s charitable purposes as a whole. For the Merton Abbey premises, the council had to establish what the charity actually used the gym for.
Section 43(6) of the Local Government Finance Act 1988 grants a mandatory 80% reduction in non-domestic rates where the ratepayer is a charity, or trustees for a charity, and the hereditament is wholly or mainly used for charitable purposes of that charity or of that and other charities. Nuffield Health is a registered charity whose objects are to advance, promote and maintain health and healthcare and to prevent, relieve and cure sickness, all for the public benefit. From 1 August 2016 it occupied the Merton Abbey members’ gym in the London Borough of Merton and claimed the relief. Merton refused it, contending that the membership fees—£80 a month, or £71 with a longer commitment, as at April 2019—excluded people of modest means, so that the gym, viewed on its own, was not used for charitable purposes.
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The decisions below
Stuart Isaacs KC held that section 43(6) does not require the charitable character of the use to be judged by the activities at the premises alone. The question was whether Nuffield was using the gym in pursuit of its charitable purposes, seen in the context of its activities as a whole. On that test Nuffield succeeded even if people of modest means were excluded at Merton Abbey. He also found that, even viewed separately, the fees did not in fact exclude them. The Court of Appeal, by a majority, agreed with the first conclusion but unanimously reversed the second. Merton’s appeal was dismissed. Merton renewed the construction point in the Supreme Court; Nuffield argued that the Court of Appeal should not have reversed the judge on the fees.
A two-stage enquiry
Lord Briggs and Lord Sales, with whom Lord Kitchin, Lord Hamblen and Lord Leggatt agreed, treated the construction of section 43(6) as a pure question of law. The provision re-enacts, in the same language, section 11 of the Rating and Valuation Act 1961, which followed the Pritchard Report’s recommendation that relief should depend on the general law of charity and should be available only where the hereditament is occupied for the charity’s purposes, not merely held as an investment.
The section requires a two-stage enquiry. First, is the ratepayer a charity? A body is a charity only if it is established for charitable purposes only. Each purpose must fall within the statutory list and be for the public benefit. Public benefit has a nature aspect and a scope aspect: the benefit must be available to a sufficient section of the public and must not exclude the poor, meaning those of modest means. Benefit to both rich and poor can satisfy that requirement; service to the rich is not merely incidental. Where status turns on how purposes are fulfilled, the charity’s activities are looked at overall, not site by site. Registration under the Charities Act 2011 creates an irrebuttable presumption that the body is established for charitable purposes only. Nuffield is registered, and it was common ground that its purposes, taken together, are for the public benefit and that its trustees were not acting in breach of trust.
Only if the ratepayer is a charity does the second question arise: is the hereditament wholly or mainly used for the charitable purposes of that charity? Those purposes are what the charity was established to do. A charity may also carry on lawful incidental activities—fundraising, investment, head-office management or staff accommodation—that do not directly fulfil its purposes. Glasgow Corporation v Johnstone and Oxfam v Birmingham City District Council show that relief is available where the use directly carries out the charitable purposes or is wholly ancillary to, or directly facilitates, that carrying out. Use merely to raise money, or as an investment, does not qualify. The second stage is essentially factual. It does not require a fresh charity-law analysis of whether the use of that hereditament, imagined as the charity’s only site, would itself satisfy public benefit.
Why a site-by-site public-benefit test was rejected
Merton’s construction would have required the rating authority, after finding that the ratepayer was a charity, to ask whether the use of the particular hereditament, viewed in isolation, met every condition of charitable status, including public benefit. The Court held that nothing in the statutory words calls for that counterfactual. The parenthetical words make clear that the relevant purposes are those of the charity in question. The rating authority identifies those purposes—usually from the constitution or the register—and then decides, as a matter of fact, whether the sole or main use of the premises furthers them or is sufficiently closely connected with them. That approach better serves the Pritchard Report’s aim of a simple, predictable and consistent relief. Provisions about empty properties, enacted later and in a different policy setting, do not alter the meaning. Nor is section 43(6) an exception that must be construed strictly so as to narrow the relief.
Application to Merton Abbey
Nuffield’s essential purposes include the advancement of health. It fulfils them at hospitals, clinics, fitness centres and gyms. The Merton Abbey gym—pool, gym, classes and related facilities, offered primarily to members, with some limited free or low-cost services to others—is used directly for that purpose, not for an incidental activity of the kind considered in Glasgow Corporation or Oxfam. The Court of Appeal had found that, at that gym, provision was made only for those who are not of limited means. Even so, the rich form part of the section of the public benefited by Nuffield’s purposes. Registration, and the agreed absence of any breach of fiduciary duty, require it to be assumed that, across Nuffield’s activities as a whole, people of modest means are not excluded. The gym is therefore used wholly or mainly for Nuffield’s charitable purposes.
Verdict: The Supreme Court unanimously dismissed Merton’s appeal. Nuffield Health was entitled to the mandatory 80% reduction in business rates for the Merton Abbey gym from 1 August 2016. The Court had no need to revisit the finding about the affordability of membership at that site.
Source: London Borough of Merton Council v Nuffield Health [2023] UKSC 18
