Many councils act as sole trustee of charitable trusts, often for recreation grounds, village halls or land gifts. When councils act in this role, the legal rules change: they must put the charity’s interests first, even if that conflicts with council priorities.
Property transactions (leases, licences or disposals etc) that are treated as routine council business are legally distinct when charity property is involved. Taking the wrong steps can lead to invalid transactions and liability for the council as the trustee.
Acting as a Charity Trustee
When councillors are meeting to discuss aspects of the charitable trust where the council is the sole trustee, they need to set aside their objectives as councillors and view themselves as the trustees of the trust, with it’s own specific objectives and interests. In the simplest form, their acts as the sole trustee will need to comply with the following:
- Decisions must follow the best interests of the charity, not the council.
- The arrangement is governed by Charities Act 2011, setting out specific rules to follow.
- Certain disposals or leases may require a qualified surveyor’s report or Charity Commission consent.
- Proper minutes and documentation are essential to avoid future challenge.
Common areas where councils can find themselves in hot water are where they:
- Grant leases at undervalue without the required qualified surveyor’s report.
- They dispose of the land without complying with the Charities Act 2011.
- Change the use of property outside the charity’s objects.
- Mix charity income with general council funds, breaching ring-fencing rules.
- Fail to document trustee decisions properly, creating potential liability.
Commercial use and income
Increasingly, there is a need for councils to generate income from their assets. However, when it comes to property owned by a charitable trust where the council happens to be the sole trustee, the rules change as the rules under charity law take precedence over council powers.
The council must also be alert to any VAT elections being done in the name of the charity and for all profits to be applied strictly for the charity’s purposes, separated from the council’s general funds with independent accounts maintained.
There is also the universal pitfall when granting commercial leases that the Landlord & Tenant Act 1954 rules may apply unless excluded, accidentally awarding a tenant a statutory right to a new lease when the existing one comes to an end.
What can councils do to protect themselves?
Councils acting as a sole trustee cannot treat charity property as regular council property. Decision-making, documentation, powers and even bank accounts must be kept legally distinct. Before looking to dispose of charity property or enter any lease or licence, legal advice should be sought to ensure compliance with charity law.
If you need advice, please get in contact with our Social Housing team or call us on 0345 450 5558.