In view of the challenging times that charities are facing during this Covid-19 crisis and indeed when we emerge from the restrictions, there may be some charities which are considering whether or not to dispose of or sell land. There are a number of formalities which must be followed when disposing of, mortgaging, or purchasing/leasing any land from/to a charity. We have prepared a brief summary of those formalities as a reminder of the requirements, please note that this is for reference purposes only and should not be taken as written advice, if you propose to enter into any of the following transactions discussed below, please seek independent legal advice before doing so.
When it comes to a charity disposing of, mortgaging, or purchasing/leasing any land, it is necessary to first refer to the formalities as set out in the Charities Act 2011 (the "Act") before entering into any transaction.
In the Act, a charity is defined in Section 1 as an "institution which is established for charitable purposes only, and falls subject to the control of the High Court in the exercise of its jurisdiction with respect to charities."
The above appears quite self-explanatory, however, when it comes to the disposal of land, there are different requirements depending on whether the charity is categorised as Non-exempt, Exempt or comes under the definition of other bodies.
In most circumstances, a charity will be non-exempt as they are usually not subject to supervision by a Government Department or other public authority. Unfortunately, if the charity is non-exempt, they will be subject to a number of restrictions on their ability to dispose of their land, mortgaging the same, or on purchasing/leasing land for the purposes of the charity.
We do not discuss the formalities of those exempt charities or those other bodies in this brief guide and so, should you require advice regarding the formalities surrounding these charities then please do not hesitate to contact us on 01603 693500 or email us via the 'Make an Enquiry' online form on our website.
Disposals from a charity
Section 117(1) of the Charities Act states that no land may be conveyed, transferred, leased, or otherwise disposed of by a charity without an Order made by the Commission. Please note that a reference to land covers buildings, other structures, land covered by water, an estate interest, easement, servitude or right in or over land – it is therefore an all-encompassing reference. The following transactions would be caught by this provision:-
- Conveyances/transfers;
- Grant of lease;
- Surrender of lease;
- Grant of easements;
- Grant of an option;
- Grants of rights of way; and,
- Grants of wayleave etc.
Although a grant of a license to occupy and tenancy at will do not create an "interest" as such in the land (therefore not being caught by the provisions of the Act) authorisation may still be required if they are granted to a connected person to the charity itself (i.e. a board member, relative etc.) due to potential conflicts of interest. If you believe that the person to whom the disposal is made may be considered a connected person, please seek independent legal advice regarding this transaction before entering into such.
Further to the above, an appointment of a new trustee and contract for a disposition such as an agreement to sell/lease also do not fall foul of this Act; nonetheless certain requirements must have been met as outlined in the Act to avoid authorisation being sought.
Section 117(1) of the Act states that no land may be disposed of by a charity without an Order made by the Commission. However, many disposals may not require authorisation if they follow either procedures set out in the of section 119 by obtaining advice from a qualified surveyor and Section 120 where the grant of a lease is for less than 7 years.
However, it should be noted that neither provisions are able to be used in the case of a disposal/lease to a connected person – an order from the Court will be required in these circumstances.
Obtaining advice from a qualified surveyor
Under Section 119, trustees of the charity can avoid seeking authority from the Court/Commission through obtaining advice from a qualified surveyor regarding the disposal.
The surveyor must be a fellow or professional associate of the Royal Institution of Chartered Surveyors and have experience in valuing land similar to that in the transaction. Once an appropriate surveyor has been identified, they must then provide a written report of the proposed disposition which must provide the information as set out in the Charities (Qualified Surveyors' Reports) Regulations 1992. The report must also consider the appropriateness of the charity advertising the property, and whether the terms of the disposition are the best that can be reasonably obtained.
This advice must be sought before a contract of sale, lease, or other disposition is entered into.
If the surveyor does not feel that the proposed disposition is in the best interests of the charity, they must set out their opinion and reasons for it in their report, and advise on alternative ways in which the charity may dispose of the land.
Granting a lease of not more than seven years
Should a charity enter into a lease of seven years or less, and will not be granted in consideration of a fine, Section 120 sets out the following procedure should be followed:-
- Charity should obtain and consider advice on the proposed disposition of a person who is reasonably believed by the trustees to have the requisite ability and practical experiences to provide competent advice;
- No requirement that this be in writing;
- No requirement that the advice be provided by a qualified surveyor – in practice however, a trained surveyor is most likely to be the best person to advise in this case;
- If they are happy with the advice, they must consider whether the terms of the disposition are the best that can be reasonably obtained for the charity.
As with Section 119, these steps must be undertaken before the Charity enters into any agreement for a lease.
Disposals of land designated for the charity's use
In the circumstances where a charity is disposing of land which is held on trust for the use of that charity only, the above provisions cannot be relied upon. In this case, Section 121 of the Charities Act will apply. This is outside of the scope of this brief guide however if you would like further advice and guidance on this point then please do contact us.
Excluded transactions
Charities should be aware that there are certain types of transactions which are excluded from the above provisions (these are set out in Section 117 of the Act). If you have any concerns as to whether the proposed transaction is an excluded transaction for the purposes of the requirements of the Act then please do get it contact with us and we can advise you further.
Dealing with the Formalities (Section 122 and 123 of the Act)
In any event, whether the disposition falls within Section 117 or not, it is worth noting that Section 122 must be followed. Section 122 sets out that a statement must be included within the contract/lease etc which sets out the following:-
- Identify whether the land is held by, or on trust for the charity;
- Specify whether the charity is exempt or not;
- Whether the disposals falls within one of the excluded categories; and,
- If not, confirm whether Section 117-121 applies.
In certain circumstances, the Land Registry Practice Guide and Land Registration Rules set out that specific wording should be used when making this statement, however, your solicitor will be able to advice on this further when entering into a contract for the disposition of the land.
Following which, when a non-exempt charity disposes of land, they must also include a certificate under Section 122(3) to show that they have either obtained an Order from the Court or Commission, or that they have followed the formalities contained in Section 117-121. Failure to prepare the correct certificate can cause the disposition to be held void (as if it never took effect), or voidable, depending on the circumstances.
Disposal of land to a charity
All dispositions in favour of a charity must include a statement in line with the provisions set out in Section 122(8), unless they fall within the limited exceptions:-
- That the land will be held by or on trust for the charity;
- Whether the charity is exempt; and,
- If the charity is non-exempt, that Section 117 to 121 will apply to the transaction subject to the exceptions set out in Section 117(3).
The statement must be set out in the prescribed form noted in the Land Registration Rules in the circumstances where the land is subject to compulsory registration, or where the disposition is required to be registered.
In addition to the above, it is also worth noting that if the charity is also a registered company, and they do not have either the word "Charity" or "Charitable" in their name, they must note that they are a charity in all conveyances (disposal, transfer,etc) where signing as the company, rather than the charity.
Mortgages
Should a charity wish to enter into a mortgage over a piece of land, there are separate restrictions as set out in Section 124 of the Act (there are some limited transactions which will be exempt from these requirements). This provision sets out that no land held by, or on trust for, a non-exempt charity, may be mortgaged or charged without an Order made by the Court or Commission.
However, an Order is not required if the charity obtains and considers the written advice on the mortgage before entering into it. This advice must be provided by someone who the trustees of the charity reasonably believe is appropriately qualified and has the requisite knowledge and experience to provide such advice; and that they have no financial interest in the transaction. This Act does provide that this advice can be provided in the course of employment by an officer or employee of the charity or of the trustees.
As with the disposal of land there are a number of formalities in respect of the documentation which must be complied with and your solicitor can advise you on these requirements.
Charities and Covid-19
On 8 April 2020 the Chancellor announced a package of financial support for charities however this package is unlikely to be sufficient to assist many charities. At the moment the package being offered to charities does not give sufficient detail about what charities will need to do and how they will access these monies.The emphasis seems to be on hospices and those charities providing direct services to help the vulnerable during these very difficult times. How easy or difficult it will be for charities to access this financial support remains to be seen.
The Government has announced that charities will also be able to take advantage of the financial support package for businesses. In many cases charities will have already taken action to furlough staff so as to benefit from the Coronavirus Job Retention Scheme.
Where a charity is currently leasing premises and are concerned about their ability to pay their rent, it may be able to reach an agreement with their landlord to defer their rent or indeed other concessions. The issue of rent obligations and potential deferment of rent under a commercial tenancy is discussed in our recent article on 'Commercial Leases and COVID-19: Rent Obligations'
At this time the need for charities has never been greater but indeed so the pressure. In addition to the difficulties facing charities some charities are also considering whether they are able to offer relief and support during these uncertain times. It is important that the charity looks carefully at their charitable objects set out in their governing documents. Once the charity has ascertained whether or not there are any restrictions in their objectives, such as geographical restrictions to the local area, it may be possible for some charities to amend their governing objectives to allow them to offer assistance and relief.
If you are a charity and you are considering a change to your objectives to be able to assist with the Covid-19 crisis or you are a charity looking to dispose of charity land and not sure of the next steps particularly in light of the covid-19 restrictions then please do contact our Corporate and Commercial Team.
For more information on the legal services we offer to charities, visit our dedicated charity services webpage, call 01603 693500 or email us using the 'Make an enquiry' form.
*This article is provided for general information purposes only and does not constitute legal advice or other professional advice.
