Simplifying disposals of charity land under the Charities Act 2022

Changes to dealings with charity owned land will take effect shortly which will make the disposal of such land more flexible and less prescriptive. The following changes under the Charities Act 2022 are due to come into effect imminently, although a date is still awaited.

This will revisit the rigid restrictions that were last updated under the Charities Act 2011 and a reporting process that harks back to the Charities (Qualified Surveyors’ Reports) Regulations 1992.

It should be noted that the legislation refers to charity land but that we are talking about any entitlement to an interest in real estate which would include freehold and leasehold property, rights over others land and the benefit of covenants.

Exceptions to restrictions on dealing with charity land

There are currently restrictions which mean charity property cannot be disposed without an order made by the court or the Charity Commission, unless either the charity obtains a report from a qualified surveyor, grants a lease of less than seven years which has less stringent requirements or falls within narrow exceptions.

The Charities Act 2022 will expand the exceptions so that the restrictions on dealing with charity land will not apply where:

• a charity is one of several beneficial joint tenants or tenants in common of land and the trustee of the land is disposing of the entirety;
• land which is being disposed of is left to multiple beneficiaries under a will, one or more of which is a charity; or
• a trustee holds land on trust for multiple beneficiaries, one or more of which is a charity.

This will address situations where a charity as one member of a group of beneficiaries was subject to a stricter statutory regime which, in practice, came to apply to the whole group who could not make a disposal unless the restrictions were satisfied.

Disposals of charity land by liquidators, receivers, administrators  or mortgagees will also be excluded from the restrictions under the new law, making it easier for them to dispose of charity property.

Charity to charity transactions for less than best price

Whilst widening some of the exceptions to the disposal regime, the new Act will also narrow the application of one of the exceptions. There is currently an exception for charity to charity land disposals for less than best price where the disposing charity’s trusts allow the disposal as being within its objects. In those cases there is no requirement for a qualified surveyor’s report.

As such provided the parties were both charities and the disposing charity had purposes which could include those of the receiving charity then they could avoid offering a disposal to the wider market if they could demonstrate that the price was below market value.

The Charities Act will amend this exception so that it only applies where the sole purpose of the transaction is to further the charity’s purpose with value not being a motive.

For example, if the sale of charity property is a commercial transaction intended to deliver a good price for the disposing charity, or where a financial benefit generated by a transaction is a motivating factor in addition to a charitable benefit, then the usual restrictions will apply.

This is to ensure that trustees have a clear sense of purpose in what they are seeking to achieve. Although it may be tempting to sell to a fellow charity at a discount because it ‘feels right’, trustees should focus on the desired outcome and if that is best value then the property should be put to the wider market to achieve that.

Advertising and reporting requirements relating to disposition of charity property

At present, trustees who are considering a disposal by a charity must obtain a written report on the proposed disposition from a suitably qualified surveyor, advertise the disposition in whatever manner the surveyor advises, and be satisfied that the terms on which the disposition is proposed to be made are the best that can reasonably be obtained for the charity.

The qualified surveyor’s report, known as a s119 report under the Charities Act 2011, is currently by far the most common option in dealing with the restrictions placed upon charities. These reports are, however, technical, requiring a member of RICS to write them and to answer a prescribed set of questions which were often disproportionate or irrelevant to the disposal in question. One size rarely fits all and as a result charities have experienced increased costs and delays in what could be relatively obvious actions, such as the surrender of a market rented lease to achieve a release of liability.

Currently, RICS qualified surveyors who have experience in that area of property are the only ones permitted to provide such reports. This will now be widened by the Charities Act 2022 to include fellows of:

• The National Association of Estate Agents;
• The Central Association of Agricultural Valuers; and also
• Qualified charity trustees, officers and employees including where they do so in the course of their employment by the charity.

The changes will allow for a more bespoke approach and give trustees greater flexibility to select the most appropriate adviser for the transaction in question.

Another change will be removing the requirement for charity trustees to advertise a proposed disposition in the manner advised in the surveyor’s report. The charity must simply consider any advice on advertising that is given, but there is no longer a statutory requirement for the charity to follow that advice.

Also, the surveyors’ report itself will no longer have to include the prescribed information in the Charities (Qualified Surveyors’ Reports) Regulations 1992, which do not always fit with transactions. As a result, these Regulations are being repealed.

Wording to be included in contracts for sale of charity land

There will be a new requirement to include in a contract for sale of land a certificate that the Charities Act has been complied with, whereas you currently only need to add this wording to a transfer or lease which is at the point of disposal.

This highlights the need for trustees to ensure full compliance with the Charities Act requirements by exchange and that they have taken proper advice and achieved best terms. This is sensible as it removes the risk of trustees contracting to dispose of land without having determined that the disposal requirements can be met with a potential unenviable choice of breach of contract or breach of trust.

Residential tenancies granted to employees

The Charities Act 2022 will amend the definition of ‘connected person’ to exclude employees of a charity where the disposal is the grant of a short, fixed term or periodic tenancy (of one year or less) to use as their home, ie these will no longer require Charity Commission consent by an Order.

This is on the basis that this is sensible to facilitate the charity’s work but trustees will be mindful of employment land tax law here with regards to this being an employment benefit.

Connected persons

With the review of this area of charity law there was also an opportunity to address the rules around dealings between a charity and its wholly owned trading subsidiary. Under current law, such a subsidiary is deemed to be a ‘connected person’ to the charity and cannot be the recipient of any disposal by the charity without the express approval of the Charity Commission.

Such transactions are not uncommon where a Charity is seeking to structure its property in such a way that trading can properly be conducted outside of the charity or where risks around matters such as development or refurbishment can be ring-fenced. The new Act retains the status quo which feels like a missed opportunity.

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