Trustees must always act in the best interests of their Charity. Usually how they do this is left to their discretion, but when it comes to selling, leasing or dealing with their Charity’s land, there are clear statutory requirements that must be followed. In most cases, this means that the Charity will be able to dispose of Charity land without the prior consent or approval of the Charity Commission.
This article sets out the process as it will be once the relevant section of the Charities Act 2022 comes into force, which is anticipated in the late Spring:
Initial considerations for disposing of Charity land
There are several things that Trustees must think about before proceeding with a disposal of Charity land:
- Do the Trustees have a power to dispose of the land?
- Would the disposal be in the best interests of the Charity?
- Do the Trustees own the title to the land?
- Is there anything in the governing document that prohibits the disposal?
- Do you need the authority of the Charity Commission, or of the Court?
Whatever is decided, the Trustees must always act in the best interests of the Charity. This is one of their main responsibilities and is an important consideration when deciding whether to dispose of Charity land.
With this in mind, the Trustees should always consider what the effects of the disposal will be, both on the Charity, its beneficiaries and any other stakeholders.
Trustees can usually dispose of Charity land without authority from the Charity Commission, provided that they comply with certain statutory requirements. These are set out in the two following paragraphs. Where Trustees cannot comply with these requirements, or do not do so before entering into an agreement to dispose of Charity land, then they must apply to the Commission for an Order. There are circumstances where an Order from the Commission will always be required, and these are set out later in this note.
Charity legislation distinguishes between simple, short term disposals (ie, those by way of a lease for 7 years or less, where no premium is to be paid) and sales, longer leases and other disposals.
The requirements for simple short term disposals are less demanding. The requirements for these two types of disposals are explained in the following paragraphs.
1. Simple Short Term Disposals
As stated above, this applies to leases for 7 years or less, where no premium is being paid to the Charity. Provided that the requirements are followed, this type of disposal may be completed without an Order of Commission, unless it involves a connected person.
If the lease contains an option to renew for a further term, and the total of the terms exceed 7 years, then the more detailed requirements set out in the next paragraph will apply.
It is considered that simple short term disposals by way of short leases are relatively low risk. That said, you must obtain and consider a report from someone who has the ability and experience to advise the Charity competently and decide that you are satisfied that the terms of the proposed disposal are the best that can reasonably be obtained.
These requirements must be satisfied before any agreement to lease has been entered into.
It is a matter for the Trustees to satisfy themselves that the person selected to advise and report to them on the terms of the disposal have the necessary ability and expertise to provide reliable advice. This could be one of the Trustees, or even an employee of the Charity. That said, it is recommended that Trustees use a qualified RICS surveyor. It is also strongly recommended that any advice given be in writing.
2. Sales, longer leases and other disposals
This paragraph covers disposals by way of:
- a sale or transfer of freehold land;
- a lease for more than 7 years;
- the grant or release of a right, easement or restrictive covenant;
- a lease for 7 years or less where a premium is being paid to the Charity; and
- any other disposal of an interest in land.
If you are undertaking one of these types of disposals, you can completely dispose without an Order of the Commission, provided you have;
- obtained and considered a written report from a designated advisor; advertised the disposal if that is the advice of your surveyor, although this is no longer compulsory if the charity have considered the contents of the report and any advice on advertising received by their designated advisor; and
- you are satisfied that the proposed terms are the best that can reasonably be obtained.
Whilst this previously required a qualified surveyor, the designated advisor does not now have to be a member of the Royal Institute of Chartered Surveyors and now includes fellows of both the Central Association of Agricultural Valuers and the National Association of Estate Agents. Charity trustees, officers and employees can provide advice to the charity on land disposals, even in the course of their employment with the charity. An advisor must certify that they have the appropriate experience and expertise to advise the charity and that they have no conflicts of interest.
The written report must comply with the Charities (Qualified Surveyors Reports) Regulations 1992 and advise on the value of the land, how to increase the value, marketing of the land and any other reasonable steps that could be taken to make the disposal as successful as possible.
In addition to the above requirements, the legal documentation must include certain statutory statements and certificates.
Disposals requiring Charity Commission Consent to dispose of land
If you are unable to comply with the requirements set out in the preceding two paragraphs, you must obtain an Order from the Charity Commission. If you dispose of land to a connected person, you must always obtain an Order, even if you can comply with such requirements. A connected person includes the Trustees themselves, a donor of land to the Charity, close relatives of either of these, employees or officers of the Charity and their spouses or civil partners.
If the disposal involves designated land, then if the Trustees do not intend to or cannot replace the designated land, then Charity Commission consent is likely to be required, and a scheme obtained to provide a power of sale and to change the Charity’s objects. This is because the disposal will mean you can no longer carry out the purposes of the Charity for which the land is held. You will also need to give public notice of the proposed disposal.
To discuss this article, please contact our specialist Charities team.