168: Sale of property not void for technical failure to comply with charity disposal rules

The case of David Roberts Art Foundation Limited v Riedweg saw the High Court decide that a contract for the sale of property by a charity remains valid even though the strict requirements of the Charities Act 2011 (the Act) on property disposals had only been partly complied with.

Facts

The David Roberts Art Foundation Limited, a charitable company, agreed to sell a property in Camden to Ms Riedweg for £8.01 million. To comply with the Act, the Foundation instructed surveyors to prepare a report on the sale which valued the property at £7.5 million. The report contained some inaccuracies and did not deal with the marketing of the property, even though a surveyor is obliged to report in detail on how to advertise a charity property sale.

The parties entered into a contract for sale at £8.01 million and Ms Riedweg paid a deposit of £410,000. The sale contract did not contain the correct wording for the necessary statement and certificate of disposal wording which is specified in the Act. It did, however, attach a draft transfer of the property which contained an attempt at some of the required wording.

The Foundation directors approved the contract which was exchanged the same day. It is not clear from the facts whether the charity trustees actually looked at the surveyor’s report in order to confirm that the terms of the sale were the best that could be reasonably obtained, and this may have been another error.

Ms Riedweg failed to complete the property purchase, and the Foundation served on her both a notice to complete and notice to rescind the contract. The property was owned by the Foundation for another year and later sold to a third party for £5.5 million.

The Foundation issued a claim against Ms Riedweg and sought declarations that the contract had been rescinded, that the deposit could be kept by the Foundation and a judgment for payment of the balance of the outstanding deposit due under the contract (plus damages). Ms Riedweg claimed the contract was invalid, void and unenforceable because of the mistakes and omissions made which meant it was not compliant with the Act.

The relevant clauses in the transfer stated correctly that the seller was a non-exempt charity. However, it contained ambiguous wording about whether it was disposing of land to which sections 117 to 121 of the Act applied, and did not contain a statement under section 122(2) of the Act which was necessary. These were technical errors that the buyer was trying to rely on to get out of buying the property.

Decision

The High Court held that even though the sale contract did not contain all the wording required by the Act for a sale by a charity, the draft property transfer did contain some of the necessary statements and the transfer had been sufficiently integrated into the contract.

It held that the Act could not intend a sale contract to be void where there is failure to include the necessary statements, as this would be a ‘disproportionate’ result.  Also, where the surveyor’s report failed to deal with the marketing of the property, if a charity could demonstrate that advertising would have made no difference then this would not actually invalidate the contract.

This case is useful precedent for charities to rely on when selling property if it finds that the Act has only been partially complied with, although it was very specific to the facts of the case where a buyer was attempting to get out of the contract.

It also sets down a precedent that shows where the advertising provisions have not been fully complied with in a surveyor’s report on sale of charity property, this may not invalidate the sale. This may be useful, for example, where a surveyor has struggled to justify a full marketing campaign.