World Heritage Site hotel wins appeal against decision to refuse bid for charitable status
A hotel which donates a proportion of its revenue to a trust that manages a Scottish World Heritage Site has successfully challenged a decision to reject its application for charitable status.
New Lanark Hotels Ltd, which donates income from its hotel accommodation and associated activities to the New Lanark Trust, applied to the Office of the Scottish Charity Regulator (OSCR), but its application was refused because it failed to meet the “charity test”.
However, a judge in the Upper Tribunal for Scotland allowed Hotels’ appeal after ruling that the FTT failed to provide “adequate reasons” for its decision.
Lord Tyre heard that the appellant company – whose “principal purpose” is to produce income to be donated by gift aid to New Lanark Trust (NLT), the body responsible for managing the UNESCO World Heritage Site at New Lanark – operates a hotel, hostel, self-catering accommodation and associated activities within New Lanark village, including a conference centre, bar, restaurant, wedding venue, leisure club, pool and beauty rooms.
Hotels, which is wholly owned by NLT, occupies as tenant buildings owned by the trust, paying an annual rent together with an additional sum based on a percentage of turnover.
It also contributes a proportion of the cost of repairs and maintenance of the buildings and common parts, and is responsible for the repair and maintenance of the interior of the premises that it occupies.
Hotels applied to OSCR to be entered in the Scottish Charity Register.
In terms of section 5(1) of the Charities and Trustee Investment (Scotland) Act 2005, OSCR may enter an applicant in the Scottish Charity Register only if it considers that the applicant meets the charity test.
Under section 7(1), a body meets the charity test if (a) its purposes consist only of one or more charitable purposes, and (b) it provides or intends to provide public benefit in Scotland or elsewhere.
By letter dated 26 April 2018 the respondent refused the application, on the ground that Hotels did not provide “public benefit” and accordingly failed to meet the charity test - a decision that was maintained following a review.
Hotels appealed to the General Regulatory Chamber of the First-tier Tribunal for Scotland exercising its charity appeals jurisdiction, but by its decision dated 11 January 2019, the FTT upheld OSCR’s decision.
The company appealed to the Upper Tribunal on the sole ground that that FTT had failed to give adequate reasons for its decision.
The issue between the parties was whether activity that was commercial in nature could also further charitable purposes and thus assist Hotels to meet the public benefit test.
OSCR had been of the view that it could not, and its officer gave evidence to that effect to the FTT, adhering to published guidance.
The FTT considered that while some activities of an entity may in result in public benefit, this may not necessarily equate to an entity’s activities resulting in public benefit when looked at as a whole.
The primary activities of the appellant, which were operating and managing a hotel, hostel and self-catering accommodation, were “not in furtherance of, or incidental to, the appellant’s charitable purposes”.
Accordingly, while some of the appellant’s activities were accepted as being in furtherance of its charitable purposes – for example, some maintenance of the occupied buildings and environs, offering discounted accommodation to interns, academics, students and conference guests – these activities were “outweighed by its solely commercial activities”, such as offering overnight accommodation to visitors with associated services, and leisure club facilities for residents and non-residents.
However, the tribunal added in a section headed “observations” that just because an entity is undertaking trading or activity which is commercial in nature, this does not automatically prevent that trading or activity being in furtherance of its charitable purposes in terms of assessing public benefit.
On behalf of the appellant it was submitted that, having rejected the proposition that commercial activity was not ipso facto non-charitable, the FTT had “failed to explain its conclusion” that Hotels failed to satisfy the public benefit test because its activities which OSCR accepted as being in furtherance of its charitable purposes were outweighed by its “solely commercial activities”.
Since commerciality had been held not to prevent trading or activity from advancing charitable purposes, it was not explained what balancing exercise was being applied in reaching the FTT’s decision.
The judge ruled that the decision should be quashed on the basis that the FTT gave “inadequate” reasons.
In a written decision, Lord Tyre said: “I am of the opinion that the FTT has not provided proper, adequate and intelligible reasons for its decision, because it has failed to address the point truly at issue between the parties.
“OSCR’s argument before the FTT had been founded upon the commercial nature of some of the activities pursued by Hotels, but, as the FTT held in the first paragraph of its observations, the fact that an entity undertook trading or activity which was commercial in nature did not prevent that trading or activity being in furtherance of its charitable purpose in terms of assessing public benefit.
“The FTT thus accepted an important step in Hotels’ argument, and rejected the counter-proposition that commercial activity was not charitable activity and, accordingly, that if it constituted a sufficiently high proportion of the organisation’s activities it would cause the organisation to fail the public benefit test.
“Having thus accepted Hotels’ argument that commercial trading or other activity could be in furtherance of an entity’s charitable purpose in assessing public benefit, the FTT then required to consider whether the admittedly commercial trading or other activities of Hotels were or were not in furtherance of its charitable purpose.
“The FTT identified Hotels’ commercial activities. But it did not go on to address Hotels’ argument that these commercial activities were, for the reasons set out in its Notice of Appeal…in furtherance of its charitable purpose.
“Instead, the FTT appears to have decided the point under reference to the trading (ie commercial) nature of the organisation’s activities when considered as a whole, despite having concluded elsewhere in its decision that commercial nature was not determinative of whether trading or activity was in furtherance of Hotels’ charitable purpose.”
He added: “In order to resolve the issue of law between the parties, it was, in my view, necessary for the FTT directly to address the question whether (and if so to what extent) the activities of Hotels that had been characterised as commercial did or did not further Hotels’ charitable purposes and thereby provide public benefit, and to give reasons for its decision on that question.
“That was in substance a disputed issue of fact in respect of which a finding was essential in order to address the issue of law and decide the appeal. Without such a finding, the FTT’s reasons are in my opinion inadequate, in a manner that is prejudicial to Hotels.”
© Scottish Legal News Ltd 2020