The windows are painted over, the woodwork is rotting and weeds have sprouted through the paving outside.

The former Duke of York pub in Clapham, south London, is not in the best of shape. It certainly does not look like somewhere used for regular prayer services.

Yet round the back, a piece of paper has been pinned to a door, inviting anyone who stumbles upon it to “book a private religious worship session here”.

The notice provides contact details for Faithful Global, an inter-faith organisation whose website preaches “the power of community, connection and inclusion”.

“Our mission is to see greater opportunities for local faith communities who are seeking suitable venues for their religious practices, community activities or private prayer.” it says. However, Faithful’s mission may be more financial than spiritual. In fact, the organisation is the lynchpin of a corporate network whose primary aim appears to be tax avoidance, at the expense of cash-strapped councils battling a funding crisis.

Details about the scheme’s reach, revealed in the Observer today, raise questions about whether Faithful – and its landlord clients – are diverting millions of pounds earmarked for public services into their pockets.

The faith room scheme

To religious groups in need of a place to gather, Faithful Global appears to be the answer to their prayers. As of last week, it listed 370 properties – stretching from Cornwall to Aberdeen – that can be booked as “safe and accessible places of worship for people of all faith backgrounds”.

They range from tiny retail units to gleaming office blocks and football-pitch-sized warehouses that could hold a congregation of thousands. For lone worshippers, there is a calendar of upcoming open prayer sessions to join.

Faithful presents its business model as an ingenious way of harnessing the corporate profit motive for divine ends. At the heart of its proposition are business rates – taxes collected by local authorities from the occupants of commercial property. Landlords do not have to pay rates for up to six months after a tenant vacates their property. After that, the tax – worth £25bn a year to local authorities – kicks in again.

However, relief on these “empty rates” is available to landlords who allow the property to be used free by a charity or community sports group. There is also an exemption for properties offered to faith groups under the religious worship exemption of the Local Government Finance Act 1988, legislation passed under Margaret Thatcher that also introduced the poll tax.

Tom Perry of business rates consultancy Holloway Bond says the aim is to align landlords’ interests with the common good. “The principle is that the property is made available for the public to use,” he said. “If it’s done right, it can be an ethical idea that’s beneficial to people.” Or, as Faithful puts it, landlords can “unlock their property’s potential as a space for local worship and prayer, while also benefiting from reduced costs”.

However, information obtained by the Observer raises questions about whether property owners are holding up their end of the bargain.

A couple of miles down the road from the building that once housed the Duke of York pub lies a former dentists’ surgery. It was also listed on the Faithful website in early March but did not appear to be usable for prayer sessions. Its front door was boarded up, the interior filled with building materials and junk.

When the Observer emailed Faithful posing as a potential landlord client, a representative responded within days. But a separate inquiry about the possibility of a faith group using the dentists’ surgery elicited an automated message, promising a follow-up that never materialised. The property was removed from its listings soon after.

Over two weeks, the Observer monitored a calendar of open prayer sessions on the Faithful website. Most new listings were for dates in the past. The few that promoted upcoming sessions featured no information about the denomination of worship.

Faith tested in court

Shaylesh Patel runs Astop, an organisation that connects charities with landlords willing to offer rooms for free, incentivised partly by business rates relief. Like Perry, he believes that this model can deliver mutual benefit for landlords and charities or genuine faith groups, and thus for wider society.

“If you can imagine trying to tax a space where people go and pray, it would be unacceptable. You’re trying to tax God,” he said. But Patel questioned whether Faithful’s operation was in keeping with the intent of the exemption, pointing to a row that has arisen in Kent.

Dover district council is in dispute with the owners of Discovery Park – a sprawling life sciences hub near Sandwich. More than 60 units at the park have been claimed as places of worship, the council said. It has received legal advice that suggests the faith room exemption should not apply and is now preparing to pursue the owners of the park for £1m.

“If you’re saying that 60 spaces in one business park are being used for faith purposes, that’s not in the spirit of it at all,” said Patel. “That’s looking at the rules and trying to find loopholes.”

The site’s owner, Discovery Park Estates, pulled in revenues of £22m in 2023, although it lost £169,000 before tax. But the company is just one part of a nationwide corporate network controlled by the Schreibers, a large London-based family of property investors who appear to be the scheme’s biggest customers.

Companies controlled by members of the family also own the former Duke of York pub and a host of other venues listed on Faithful’s website. Representatives of the family told the Observer that business rates on empty properties put a “significant burden” on landlords. They said their use of the scheme was legitimate and did not constitute tax avoidance.

They also said that their properties at Discovery Park and elsewhere had been used for faith purposes, and that local authorities had been provided with evidence of this.

Behind the scheme

A court ruling from last year raises questions about how often some of the venues offered by Faithful are actually used for faith purposes. The case also laid bare the corporate interests behind the “inter-faith organisation” itself.

Bradford Metropolitan borough council brought a successful claim against a property owner for unpaid rates. The resulting ruling named three companies behind what the judge described as a “scheme” devised in 2021 for the purpose of tax avoidance.

One of the companies, Room for Faith Ltd, is based in the UK. Its sister firm, Local Faith Ltd (LFL), incorporated in Hong Kong, appears to be the corporate entity behind the Faithful website.

The nucleus of the scheme is a third business: Greater Manchester-based property consultancy Verity Commercial Services. The Faithful website describes Verity as a “partner” and “agent”. In fact, it was Verity that incorporated both Room for Faith Ltd and Local Faith Ltd in the first place, according to the ruling.

Verity’s website sets out a very different mission to Faithful’s. It boasts of a “revolutionary” business rates mitigation product that beats previous tax avoidance models.

The Bradford court papers shed light on the apparent inner workings of the scheme. First, according to the ruling, Verity’s landlord client grants a lease to Room for Faith Ltd. That company in turn subleases the property to Local Faith Ltd (LFL), the company behind Faithful Global. The property can then claim relief, with Verity pocketing a quarter of the savings its client makes.

The scheme appears to be the brainchild of Verity’s founder and chief executive, Simon Dresdner, a veteran property consultant who is also a director of Room for Faith Ltd. His testimony in the Bradford case raises further questions about Faithful’s prayer sessions.

In a statement submitted to the court, Dresdner referred to a meeting that Faithful claimed had taken place at one of its venues. He could not say how long the meeting lasted and could provide “no evidence of how the premises was made available for worship”, according to the ruling. In pictures of the event supplied to the court, the only person that could be identified was someone acting as an “employee or agent” working for Verity.

The property “had no electrical lighting”, according to evidence submitted during the case. A council inspector had to be shown round by torchlight. Ultimately, the court found that there was “no evidence that LFL was anything beyond a company upon which a legal right to occupy was conferred for no other purpose than the avoidance of liability to rates”.

Data published by local authorities indicates that Room for Faith and Local Faith Ltd have held dozens, if not hundreds, of leases across the country, from North Lincolnshire to South Ayrshire, and in multiple London boroughs, including Lambeth and Tower Hamlets. The variety of properties and locations means that the sums landlords can save vary significantly.

In Bradford, the council went to court for just £14,348.90. Dover said it was pursuing the owners of Discovery Park for more than £1m, although Discovery Park Estates says the sum in dispute is much lower. Verity’s own website boasts that it has saved clients £18m with its scheme.

At a national level, the costs of business rates avoidance runs high. Councils lose about £250m a year due to all forms of business rates avoidance, according to a study by the Local Government Association in 2019. Birmingham cited declining business rates among the factors that plunged it into a state of financial distress in 2023, just one example of a local authority funding crisis that threatens to cripple public services.

So far, only a handful of councils have challenged the faith room tax avoidance scheme. But City of London is now understood to be providing assistance to less well-resourced local authorities, including Dover – part of a concerted effort to shut it down.

“Tackling business rates avoidance provides much-needed funds for public services and a level playing field for firms,” said a spokesperson.

“The City corporation is using its expertise to help other local authorities fight tax avoidance schemes as part of its commitment to creating a safe, secure environment for businesses and residents alike in the Square Mile and beyond.”

In the meantime, councils seeking to protect much-needed revenue must use what scant resources they have – or offer up a prayer.

Verity and Faithful Global did not return requests for comment.

The Schreiber property empire

There is every chance that members of the Schreiber family own an office block, a shopping centre or a disused pub near you.

From a nondescript three-storey brick building in London – home to 321 active companies, according to Companies House – this dynasty of property entrepreneurs controls a nationwide real-estate empire.

The Schreibers appear to be the biggest customers of the “faith room” scheme, an audacious tax avoidance structure we reveal today.

The scheme allows landlords to avoid paying business rates if their property is being used by faith groups. But often there is little sign of devotional activity taking place.

One unlikely hive of religious fervour is Discovery Park Estates, a vast life sciences hub near Sandwich, Kent, owned by members of the Schreiber family. Dover district council is pursuing Discovery Park for £1m, challenging the company’s designation of 60 of its units as faith rooms. A spokesperson for Discovery Park said the sum in dispute was much less than £1m and that it was only leasing 18 rooms to faith groups at present. The company said it had provided evidence to the council of the buildings being used for religious worship.

Discovery Park’s chief executive, Mayer Schreiber, is one of nine siblings of a family that invests via its private office, Midos Group.

Midos is ultimately owned by 72-year-old Miriam Schreiber, one of two directors along with David Schreiber, who is the same age.

Midos owns Cornmill shopping centre in Darlington, via a company whose directors include a Jacob Schreiber. It also owns the Idlewells shopping centre, in Sutton-in-Ashfield, Nottinghamshire.

Companies controlled by David Schreiber also own the former Duke of York pub in Clapham, south London and the Regent Centre, an office block in Newcastle.

Another block on Newhall Street, Birmingham, is co-owned by a company whose owners include three members of the family: Miriam, Gyta and Osias.

All are listed as being or having faith rooms on the website of Faithful Global, an “inter-faith organisation” at the heart of the scheme.

Midos Group said its use of the scheme was legitimate and did not constitute tax avoidance. “All properties within this scheme have been made available and are accessible for faith-based activities,” it said, adding that local authorities had been provided with evidence of this. “The current business rates system for vacant properties imposes a significant financial burden on landlords, penalising them for market conditions beyond their control,” it added.