Westway Development Trust: (3/6) "London property developer in nightclub swindle"

This research document will make little sense if you haven't read Brian Deer's Notting Hell from The Sunday Times of June 17 2001. In July 2002 the trust renamed itself Westway Development Trust. A Westway Development Trust index of materials is also available

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(E) THE TRUST AVOIDED PAYMENTS DUE TO THE COMMUNITY AND THE PUBLIC GOOD GENERALLY, TO MR POWER'S PECUNIARY ADVANTAGE

Business rates and fees for public entertainment licenses are payable by the occupier of eligible premises. These contribute to costs to the public associated with the premises which would otherwise fall on the local community. In addition, as with Council Tax, they may contribute to the local economy and local government services generally, including schools, libraries etc. In the case of business rates, a proportion is collected by the authority on behalf of central government as part of complex financial settlements.

NKAT is a so-called "development trust" and, indeed was the driving force to found the UK-wide Development Trusts Association. The Partnerships Guide to Development Trusts [S12] says:

"Development trusts are a relatively new phenomena, and have grown over the past 20 years under many different influences and inspirations. They have placed more emphasis on economic development than many organisations in the traditional voluntary sector concerned with social welfare."

In the 1988 agreement with Mr Power [S5] - which describes the tenant as "the promoter" - the principle material divergences from a standard landlord-tenant lease, are clauses which exempt the occupier from business rate payments and set out provisions to deal with the situation retrospectively if the local authority gets on to this.

Notwithstanding that the trust is not the occupier of the premises, Clause 6.3 states as one of the "trust's obligations":

"to bear pay and discharge all rates which now are or at any time during the Agreement imposed or charged on the Club or on the Trust or the Promoter or any occupier in respect therefore PROVIDED THAT the Trust may at any time by notice in writing vary this Agreement by imposing on the Promoter the obligation to make all payments which are by this clause imposed on the Trust including payments arising or falling due during the term of this Agreement but prior to the date of any notice and such variation shall not affect any other obligation arising under this Agreement."

In plain language, this suggests that the trust accepts liability for the rates so long as they are not paid at all. Rarely could a contract have ever been drawn so readily and yet crucially varied by one party. The arrangement appears to have been devised to extend charitable cover to Mr Power's for-profit operations precisely for the purpose of dodging tax. Clause 7.2 makes the name of the game even more clear:

"If the Promoter receives from the relevant authority any Notice to bring the Club into assessment for rating purposes or to amend or to revalue such assessment or to bring into assessment the Club together with any buildings or plant thereon by whomsoever constructed then that Notice, together with any other Notices appertaining to rating assessments, shall be sent forthwith to the Trust at the Registered Offices of the Trust who may direct the Promoter to take such procedural action in relation thereto as the Trust consider expedient to protect the Trust's interests."

Clause 7.5 extends the retrospective aspect of the above clauses in perpetuity under the following circumstances:

"If the Promoter shall remain in occupation of the Club after the expiry or sooner determination of this Agreement the terms of this Agreement shall remain in full force and effect..."

A letter from the chief executive of the local authority dated 12th October 2000 [S13] to Pat Mason, a councillor representing the ward in which Subterania is situated, tabulates rate payments for the night-club over the past decade as nil (previous council records are apparently incomplete):

"In response to your enquiry, the commercial rates account for Subterania was in the name of North Kensington Amenity Trust between 1st April 1990 and 31st March 2000. During this period they were awarded a total of £57,275.25 mandatory relief (for charities) and £14,318.80 discretionary relief as shown in the table below. The Royal Borough would have had to meet 80% of the cost of the discretionary rate relief granted."

Over approximately the same period, the trust claimed partial wavers of the public entertainment license fees due to the local authority, on the same grounds. On 4th October 2000, the director of environmental health wrote to Cllr Mason tabulating full fees and fees paid on behalf of the night-club [S14]. After an inquiry by council officers, the full fee was paid from 1999. Brian Deer has added-up the two columns of this tabulation to produce the following figures:

Full fee (1991-2000):£74,382.88

Fees paid :£27,408.26

Net saving: :£46,974.62

More than £19,000 of these payments made were received in the past two years, following investigations by council officers.

If these figures are accurate, the trust's charitable cover for the night-club has, therefore, saved Mr Power, over the years referred to in the council tabulations alone:

Mandatory rate relief:£57,275.25

Discretionary relief :£14,318.80

License waivers :£46,974.62

Total avoided :£118,568.67

No suggestion is made that Mr Power acted improperly. He appears to have availed himself of a business advantage not apparently available to other club owners. All would doubtless wish to do the same.

(F) THE AVOIDANCE OF THESE PAYMENTS WAS UNLAWFUL

The law on business rates exemptions for charities is unambiguous, well-known, and well-publicised in the voluntary sector. The relevant statute is the Local Government Finance Act 1988, which superseded the General Rate Act 1967, which contains effectively the same provision. A standard textbook on charity law is Tudor on Charities, (eds Jean Warburton and Debra Morris). The 1995 edition [S15] states on page 304:

"Properties other than dwellings occupied by a charity are subject to non-domestic rates. Unlike council tax, direct reliefs are available for charities and certain premises are exempt from the charge. There is an automatic 80 per cent relief from non-domestic rates on premises which are occupied by a charity or trustees for a charity and used wholly or mainly for charitable purposes whether of that charity or of that and other charities."

On page 305, Tudor states:

"Obviously, if a charity owns premises and does not occupy them - if in effect, they take the form of an income-producing endowment and are let accordingly - there is no possible ground for relief (unless, of course, the lessee happens to be an institution which is itself a charity, in which case relief will be available on account of the charitable status of that institution, not that of the lessor). Perhaps less obviously, if a charity remains in occupation of the premises, but either allows them to be used by others not being either charities or the beneficiaries of the charity, or uses the premises itself for purposes not directly related to the carrying out of its charitable objects, there will be no case for relief."

The position is boiled down to its basics and distributed free of charge by the Charity Commission for England and Wales to all charities, their trustees and to anybody else who asks for or collects the relevant pamphlet from the rotating stand in its lobby. It is also available on the commission's website. The pamphlet is entitled Charities and Local Authorities [S16]:

"26. A charity has to pay only 20% of the non-domestic rates charged on a property by the charging authority if:

* the property is occupied by the charity and is used wholly or mainly for charitable purposes or

* the property is used wholly or mainly for selling goods donated to the charity and the net proceeds are applied for the purposes of the charity."

According to a report by the director of environmental health for the Royal Borough of Kensington & Chelsea's licensing (hearings) committee on 26th January 1999 [S17]:

"Public entertainment licensing is governed by the London Government Act 1963. This Act provides a statutory exemption from the payment of a fee on application for a music and music and dancing license where the license is for an entertainment which, in the opinion of the Council, is of an educational or other like character or is given for a charitable or other like purpose.

"In a meeting of this Council's Policy and Resources Committee on the 25th February 1986 it was agreed that the Council would consider charging a nominal fee of £40 where the application for an entertainment license is made by a registered charity or other similar body but cannot be considered to be educational or purely for charitable purposes. At a meeting of the Health and Housing Committee on 26th June 1989 it was agreed that the nominal fee for such organisations would be raised to £90. It was also agreed that where charities ran entertainment premises as a commercial operation they should pay the full fee. Where special representation is made for paying the reduced fee, it was agreed that such an organisation should be required to submit its accounts to the Council."

In 1998, changes in administrative procedures at the council apparently alerted middle-management officers to the true state of affairs with regard to Subterania's use, which they believed was both causing a nuisance and depriving the community of money to which it was entitled. They were apparently determined to put a stop to it. The town hall is in a different part of the borough to the night-club and is administered, like any large organisation, in discrete sections. Arising from the administrative changes, first the improper entertainment license exemptions and then, in April 2000, the discretionary rate relief were exposed as unwarranted and withdrawn [S18]. The council's Conservative political leadership, however, took no steps to recover past sums due.