An ideal time for charities to move into the retail sector
It is no secret that the retail sector has been facing a challenging time. This has led to an increasing number of vacant shops in both main high streets and more local shopping precincts. In fact the BBC only reported in August that shop vacancy rates are at their worst since 2015 (at a rate of 10.3%). With footfall also reported to be down, it appears unlikely that this trend will change any time soon.
Clearly for landlords this is not good news. Vacant properties mean not only a lack of income but an increased risk of vandalism, concerns of disrepair and of course the ongoing responsibility of empty rates liability. Empty properties can prove expensive.
An appealing option for landlords is to let their vacant units to a charity. A charity occupying a commercial property qualifies for an 80% discount on business rates (as long as the property is used wholly or mainly for charitable purposes). Some local authorities are also open to granting the remaining 20% as an additional discount (known as discretionary relief). If the landlord is struggling to fill the property at full market-value, then a reduced rent for charities is often also considered.
This is generally a win-win for both parties. The charity is able to lease a property they would not normally be able to afford, while the landlord saves in business rates, can obtain some good PR around its support of a charitable organisation and also lowers its risk of vandalism or disrepair. The charity in situ may in fact fit out the property, greatly improving its condition.
For any charities who have been considering a move into the retail sector but have been afraid to take the plunge, now may be the perfect time to progress these plans.
If you are considering this, some key points to bear in mind are:
- The length of the arrangement
- Break rights – You may not want to commit to any one site for a significant length of time. At the same time you will want to ensure you will have a reasonable notice period should the landlord wish you to vacate
- Liability for disrepair – some arrangements can impose onerous obligations on tenants
- Rent reviews
- Service charge obligations
- Rates avoidance – A word of caution. Neither local authorities, the Charity Commission nor the courts will be happy with any situation that looks like business rates avoidance. The Charity Commission has stated that they will take regulatory action if they feel it necessary. You need to ensure that any benefit to the landlord is incidental to the benefit to the charity.
The government is keen to crack down on schemes that exist only for the purpose of avoiding empty rates and therefore specialist legal advice should be obtained before entering into an agreement. If a local authority is not wholly satisfied then the charity or the landlord may find themselves the recipients of an unexpected bill for business rates.
David Stone, head of the commercial department