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Disposing of Charity Property

Any ownership or disposition of property by a charity is subject to the following:

  • General Law
  • Trustee Act 2000
  • Governing documents of the charity
  • Any restrictions imposed on the charity by whoever donated the land to the charity
  • Charities Act 2011

In this article particular consideration will be given to disposition of property by a charity and the associated requirements of the Charities Act 2011.

Where charity land is conveyed, transferred, leased of otherwise disposed of, the trustees of the charity must consider whether compliance with procedures in the Charities Act 2011 (‘The Charities Act’) is required. The Charities Act consolidates earlier legislation including the Charities Act 1993 and prescribes procedures for disposal of land owned by a charity and statements that must be included in the disposal documentation.

Which Charities are subject to the Charities Act 2011 requirements?

Exempt charities have charitable status but are not subject to most of the registration and monitoring procedures of the Charity Commission and will therefore not be required to comply with the disposal procedures in the Charities Act. Exempt charities include universities, certain museums, certain galleries and charitable societies.  In addition the act does not apply to certain bodies related to the Church of England, including ecclesiastical corporations, or generally to diocesan boards of finance of trust or consecrated land.

Non-exempt charities are however subject to monitoring procedures and restrictions of the Charity Commission and are therefore required to comply with the disposal procedures set out in the act.

The Charities Act procedure

Any disposition by a non-exempt charity must follow the procedure set out in the Section 117 of the act. Section 117 states that subject to certain exceptions, land held by or in trust for a charity may not be sold, leased or otherwise disposed of without an order of the Court or the Charity Commission unless the provisions of the Charities Act are complied with.

The Commercial Agents (Council Directive) Regulations 1993 provide important rights for commercial agents who sell or negotiate the sale or purchase of goods on behalf of others

What are the exceptions to obtaining an Order of the Charity Commission?

There are three main exceptions:

There are three main exceptions:

Exception 1

If the disposal of land is to either a Charity trustee, Donor of land to the Charity, Child, Parent, Grandparent, Grandchild, Brother or Sister of Trustee or Donor, Officer, Agent or Employee of the Charity (‘a Connected Person’) an order of the Charity Commission will be required prior to the disposal. If the disposition is not to a Connected Person then an order will not be required but the procedure set out in section 117 must be followed;

  • The Trustees must obtain and consider a written report from a qualified surveyor acting exclusively for the charity. A qualified surveyor for the purposes of section 117 is a Fellow or Associate of the Royal Institute of Chartered Surveyors (RICS)
  • The disposal must be advertised as advised by the qualified surveyor (unless advertising is not in the interests of the Charity)
  • The Trustees must be satisfied that the terms of the disposal are on the best that can be reasonably obtained and must take into account the following:
    • Is the disposal in the interests of the charity? The charity must be able to demonstrate that the disposal is in its best interests.  A surveyor’s report needs to consider the options. If property is being replaced, the charity must ensure that any replacement property is at least as suitable or beneficial to the charity.
    • Is the disposal on the best terms? The charity must obtain the best terms that can reasonably be achieved when disposing of or leasing charity land.  This can be achieved by ensuring that the property is marketed in the most favourable way, the charity seeks the advice of professionals and the charity accepts (with special exceptions) the best financial offer.

Exception 2

If the disposal is a lease for a term of less than 7 years the Trustees do not have to follow the procedure in section 117.  However the Trustees must instead take advice from a person reasonably believed to have relevant experience to give competent advice and be satisfied that the terms are the best that can be reasonably obtained.

Exception 3

If the disposal is a disposition by way of mortgage or other charge the Trustees do not need to follow the procedure in section 117 but the Trustees must have obtained and considered proper advice or ‘relevant matters’ before executing a mortgage. What is ‘relevant’ depends on what the mortgage is being used for.

There are other exceptions but these are the most common.

In addition to the procedure discussed above the charity must include certain statements and certificates in the relevant document, whether this is a lease, transfer or other document.  For dispositions, these statements must make it clear to the buyer that the procedures under the 2011 Act have been complied with.  They also protect the buyer’s title in the event of a lack of the requisite compliance

Consequences of non compliance with the Charities Act

Examples of why this matters:

  • Section 117: A charity granted a lease to a connected person without the Commission’s consent or independent professional advice.  The rent was below market value. Without a court order, or its consent the court concluded that the charity was disadvantaged and the lease was void.
  • Failure to comply with requirements: If trustees certify that they have complied with statutory requirements but have not done so, a purchaser may consider the disposal effective if the purchase was made in good faith for money or money’s worth.

A failure to understand the requirements can delay a transaction or render it invalid which may result in loss for the charity and consequentially the trustees may be personally liable.

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Disclaimer
This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice. Please refer to the full General Notices on our website.

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