It is well established that, in order to be considered charitable, a charity must be established for exclusively charitable purposes and the nature of the charity’s purposes must be capable of benefiting the community at large. The first part of this test is somewhat less controversial as the recognised descriptions of charitable purpose are set out within the Charities Act 2011.
However, the second part, known as the public benefit test, has caused difficulties over the years as there is no statutory definition of public benefit. Instead, the Charity Commission has produced guidance on the public benefit requirement which charities must follow.
The public benefit test has two aspects:
While most organisations can easily demonstrate how their activities are beneficial and thus meet the first element, questions can be raised on whether a sufficient section of the public actually benefits from the purpose. What is sufficient is decided on a case-by-case basis.
Often the question of public benefit arises in relation to fee-charging charities such as fee-paying schools or those charities which charge for services. In the decision made in the case of Independent Schools Council v Charity Commission for England and Wales and others  , the courts confirmed public benefit is to be tested against the charity’s stated purposes and not against the activities it carries out.
In this case, the court also determined that the charity must provide the “poor” with the opportunity to benefit from the charity’s purposes and activities. This provision must be more than tokenistic but does not need to be reasonable. Therefore, beyond that bottom line, trustees are able to determine the degree of provision in line with their general duties and in accordance with the charity’s purposes.
Furthermore, the case confirmed that the definition of “poor” does not mean those who are destitute. Depending on the circumstances, it can cover people of modest means and even those who might be regarded as quite well-off.
In relation to fee-charging charities, a poor person is generally someone who cannot reasonably afford to meet a particular need by purchasing the service which the charity provides at the full cost price. Therefore, fee-charging charities can continue to operate for the benefit of the public if they make some allowances to those who would not otherwise be able to afford their services. Examples of these include discounted memberships, scholarships and bursaries etc.
The latest decision in Nuffield Health v London Borough of Merton  once again considered the question of public benefit. However, the issue was raised in the context of relief from business rates charged by the local authority. Charities are able to claim mandatory rates relief of 80% against business rates for premises which are used wholly or mainly for charitable purposes. Local authorities are also able to grant further discretionary relief up to 100%.
While there was no question that Nuffield Health was indeed a registered charity, Merton Council refused the mandatory rates relief for Nuffield Health at one of its gym sites on the basis that it was not being used wholly or mainly for charitable purposes within the requirements of section 43(6)(a) Local Government Finance Act 1988 (the legislation setting out the rules for granting rates relief).
The local authority argued that the site was, in effect, run as a business with a members-only car park, creche, spa and refreshment area. Nuffield Health charged a membership fee of £80 per month with little provision of services for non-members - and any such provision was usually only on a promotional basis.
Furthermore, there was no scheme for reduced cost membership and other local gyms provided similar services at a lower cost. The local authority therefore argued that the gym did not operate so as to provide a sufficient public benefit.
Although the Court of Appeal agreed that the use of the premises in question would not deliver sufficient public benefit if viewed in isolation, it ultimately agreed with the initial finding of the High Court that, when assessing public benefit for the purposes of applying the mandatory rates relief, the focus was on the charity’s overall activities and purposes, not the activities at any specific site.
Lord Justice Nugee concluded that it had not been Parliament's intention that the question of public benefit “should be assessed separately for each site on which a charity carries out its charitable activity”. The relevant question was whether the charity was using the particular site for charitable purposes, not if the activity carried out at that site would qualify as a charitable activity in its own right.
A registered charity’s charitable status is “conclusively presumed” (section 31(1) Charities Act 2011) and Lord Justice Nugee said that Nuffield Health needed only to make the following statement:
“I am a registered charity. My purposes, namely the advancement of health, are therefore (conclusively presumed to be) exclusively charitable [including that they are for the public benefit]. I am using Merton Abbey [the site in question] for those purposes. That is sufficient.”
In the context of rates relief, local authorities must therefore only enquire whether the charity is using the relevant premises for its specified charitable purposes. They do not need to satisfy themselves that a public benefit is being delivered at those premises.
The local authority’s appeal was therefore dismissed. However, interestingly, Lord Justice Peter Jackson did state that, if the position had been different and had the public benefit test applied to the relevant individual site, then the charity had not shown that the test was satisfied.
While the decision is helpfully definitive on rates relief, what are its consequences in the context of charity law? Although the decision went in the favour of the charity, it clearly raises some questions for fee-charging charities and national charities with local branches.
The Lord Justices remarked in the case that it was “surprising that such a fundamental issue of principle has not arisen before” when looking at the applicability of the public benefit test to individual sites of a charity and the question was “curiously unprecedented”.
The decision also raised questions around the affordability of the monthly membership fee of £80 and pointed to the fact that there were other gyms in the area providing similar services for the promotion of health at materially lower membership charges, indicating demand at those more affordable levels.
It was found in the case that the provision of services outside this membership fee would be “so limited as to merit the description of token” and therefore “insufficient to satisfy the requirement for charitable use”. Therefore, fee-charging charities must look carefully at what provision they are making to those who cannot afford to access the services and benefits they provide and ensuring that these measures are not just tokenistic.
It remains to be seen if the Charity Commission will once again seek to refine its public benefit guidance in relation to fee-charging charities or, indeed, in the context of the modern world with more and more charities operating nationally with individual local sites carrying out different activities.
The statement by Lord Justice Peter Jackson that trustees must satisfy themselves in good faith that their provision is in the public benefit is one that charity trustees must bear in mind when considering how their activities are fulfilling their charitable purposes.
If you have any questions on this article or require any advice in relation to public benefit requirements, then please do contact a member of our team.