The issue concerns an arts charity who own the freehold to their building and their trading subsidiary who run the gallery shop and cafe within the building.

The rent for the gallery shop and cafe have been valued as required on an open market rent. The problem however is that this presumes that the gallery shop could be operated akin to gift shop, which would certainly maximise the commercial return. However if this were to happen the Arts Council and local authority funders have indicated that they would withdraw their funding over 'quality' issues. This funding is all for the charity.

The trading company is not sustainable if it had to pay a rent comparable with a gift shop or its commercial equivalent. The Charity Commission have not been impressed by the dilemma merely repeating that the trustees have a duty to maximise returns and they would be in breach of duty not to do so. The case to date has been that the operating restriction would apply whether the space was occupied by the trading subsidiary or any other arms length tenant.

What is the best way to proceed on this one? The added issue is that if the gallery shop and cafe were to close because of sustainability issues then the charity would receive no rental contribution whatsoever.