The accurate and up-to-date expression of a charity's purposes in its governing document is crucial. The articulation elsewhere of those purposes to explain and further the charity's work is also important. A Scottish case about non-domestic rates relief has underlined the importance of a charity's purposes.

The background

The charity leased a three floor building. The charity's stated constitutional purposes included "to promote the efficient and effective application of charitable resources by charities and for charitable purposes by the provision of commercial premises, support and related assistance to charities and for charitable objects."

Using the lease it had (and given its purposes), the charity was advertising the availability of space at the building to charities and community groups. At the relevant time of the rating authority inspecting and considering matters the physical active use of the building was relatively limited (an exhibition by the Equality Council UK, certain limited use by charities and others as well as a pipe band). There had been further use made of the building by charities and community groups at a later date.

Having considered the relatively limited active use of the building's extent, the rating authority took the decision that charitable rates relief should not be available. The charity challenged that decision.

The legislation

Rates relief for charities is available when:-

"any [land] is occupied by... a charity and are wholly or mainly used for charitable purposes (whether of that charity or of that and other charities)..."

The test looks at there being a charity involved and also considers the use of the building.

The court's decision

The court found in favour of the charity. The decision of the court is based on the charity's purposes - remember, its purposes were about making premises available to charities/for charitable purposes.

The charity was continuing to make the space available and was actively trying to find organisations to use the space. Unlike in previous cases, the 'empty' space was not mothballed. The space in the building here might be empty but it was being used by the charity to further its purposes. The material put before the court included information given to OSCR when Scottish charitable status was granted, which set out how the charity would further it purposes in practice and explained the activity of making space available. That act of making 'empty' space available was a use for charitable purposes in the context of this charity.

The charity's purposes and how it articulated them mattered in the decision. As the court said (with our emphasis):-

  • "... I observe that the charitable purposes for the [charity] is the provision of space for charities and community interest groups. Given that charitable purpose the amount of space which will be in active use at any given time will be dependent on the amount of space required by charities and other groups."
  • "What is clear in the present case, is that the entire property is not in active use at all times. However, given the nature of the charity, its charitable purposes and the use to which the Property is to be put [means it satisfies the legislation]."
  • "... [G]iven the [charity's] charitable purpose it is an integral element of its function that there is from time to time space available in order for it to continue to fulfil its function of offering and providing space to other charities."

So, the mixture of the stated purposes in the governing document, how the charity was expressing them and what it was doing in practice where key to this decision. But it was all rooted in the charity's purposes.

Beyond rates relief - a wider view on purposes

The case was about rates relief. The charity's purposes proved central to the decision in its favour. But purposes go far beyond the application of rates relief. OSCR is interested in purposes being up-to-date as part of the first substantive question asked on its annual return. Charities need focussed and current charitable purpose to ensure their work and strategy will flourish and be compliant. Purposes can also matter for tax purposes. Purposes are critical to the success of charity's activities. It perhaps no surprise that the first principle in the Scottish Governance Code for the Third Sector is "organisational purpose".

As a charity's purposes are manifestly important, charities, their trustees and senior teams should keep the purposes under review.