Property can be one of the most valuable assets for a charity, but it can be the most complex for trustees to deal with, especially where it is permanent endowment land. Where land is permanently endowed, special rules apply and trustees need to navigate these carefully to ensure they stay within their legal powers.
What is Permanent Endowment Land?
It is property that a charity should retain and cannot dispose of it for its value. It has usually been gifted with a condition attached, such as to be used for the charity’s purposes forever. Such arrangements are usually linked to older charities, such as village halls and church land, but can also arise for modern charities through legacies or land-based funding arrangements.
What should trustees consider when land is permanently endowed?
1. Restrictions on Disposal
Navigating rules on disposing of charity land can be complicated where the land is completely unrestricted. However, when it comes to permanent endowment, it is even less simple. Under section 281 of the Charities Act 2011, permanent endowment status can only be released in certain circumstances, and sometimes only with consent from the Charity Commission.
2. Identifying Permanent Endowment
Trustees must establish if land is held as permanent endowment. This requires review of governing documents, trust instruments and the property’s title. Words like “forever” and “in perpetuity” together with phrases about using the property for the charity’s purposes or not disposing of it could indicate permanent endowment. However, if the charity is subject to a scheme (from the Commission or court), this may override restrictions.
3. Charity Commission Consent
If the land is permanently endowed and trustees wish to dispose of it, consent from the Charity Commission may be required. The trustees will need to evidence why it is in the best interests of the charity, why the original purpose cannot reasonably continue and that proceeds will be applied properly. Failing to obtain consent could have legal and financial consequences.
4. Use of Income vs. Capital
Trustees must consider the distinction between income generated from permanent endowment (e.g. licence fees) and capital value of the asset itself. Income can usually be spent to further the charity’s purpose, but capital cannot unless the law or a scheme allows it. Accounting for these separately is essential.
5. Changing Needs and Modernisation
If the land no longer meets the charity’s needs (e.g. it is too expensive to maintain), the Charity Commission can authorise a cy-près scheme, allowing it to be sold and proceeds utilised in a way that aligns with the original intention of the donor as closely as possible. This is a lengthy process and trustees will need to provide a strong justification to warrant it.
Permanent endowment land does not mean you are stuck with the asset, but it does need more thought and legal input than unburdened charity land long before any commitments are made to dispose of it. Managing any such disposal properly helps protect the trustees together with the charity and it’s legacy.
If you would like to know more please contact Lydia Hart in our Real Estate team, a specialist in our Charity sector or call us on 0345 540 5558.