As charity trustees will be aware, charities must comply with certain legal requirements before they sell, lease or mortgage land. The rules apply to land that is held by, or in trust for, a charity, and their main purpose is to ensure that land is not sold at an undervalue to the charity’s detriment.
The Charities Act 2022 is changing some aspects of charity law with the aim of simplifying the processes that charities must follow in certain areas of their operation. The Act implements many of the recommendations made in the Law Commission’s 2017 report on charity law, which revealed that many charities were struggling with a range of technical issues.
These changes are being brought in gradually as the different sections of the Act come into force. Sections 17 and 19 – 22, which came into force on 14 June 2023, amend some of the rules relating to disposals of charity land. We set out below some important points that trustees and those dealing with charity property should be aware of.
Obtaining advice from a designated adviser
The Act has made some changes to the rules that apply to most sales of charity land, as well as leases for a term of more than seven years, although for the purposes of this article I will refer only to sales. The effect of these amendments has been to relax the requirements slightly.
Trustees are now required to:
- obtain and consider a written report on the proposed sale from a designated adviser, instructed by the trustees and acting exclusively for the charity; and
- decide that they are satisfied, having considered the adviser’s report, that the terms on which the sale is proposed to be made are the best that can reasonably be obtained for the charity.
There is no longer a default legal requirement for charities to advertise the proposed sale for the period and in the manner as is advised in the report. This gives trustees discretion to decide how to advertise, although they should still consider the recommendations on advertising in the report and, if they choose not to follow these, they should clearly record the reasons for this.
The rules now refer to a report from a “designated adviser” rather than a “qualified surveyor”. Previously, only a surveyor who was a fellow or associate of RICS could provide the report. However, new regulations brought in alongside the implementation of this part of the Charities Act 2022 have now expanded the group of professionals who can provide the report to include fellows of the Central Association of Agricultural Valuers (CAAV) and fellows of the NAEA Propertymark (National Association of Estate Agents). This gives charities greater choice and may in some cases offer cost savings.
Contents of the written report
The new regulations have also simplified the requirements for the content that must be covered in the written report. The designated adviser will now need to provide:
- the value of the relevant land;
- any steps which could be taken to enhance that value;
- whether and, if so, how the relevant land should be marketed;
- anything else which could be done to ensure that the terms on which the disposition is made are the best that can reasonably be obtained for the charity; and
- any other matters which the adviser believes should be drawn to the attention of the charity trustees; and
a statement that:
- the adviser has ability in, and experience of, the valuation of land of the particular kind, and in the particular area, in question; and
- the adviser has no interest which conflicts, or would appear to conflict, with that of the charity.
The new regulations are much less prescriptive and give the designated adviser more flexibility to tailor their report to the particular sale, so should be welcomed by trustees and advisors.
Trustees and employees as designated advisors
The Act provides confirmation that trustees, officers and employees of charities can provide the written report if they meet the designated advisor requirements.
This will be helpful for charities with personnel who have the appropriate expertise. However, any conflicts of interest must be properly managed. If the charity would like to pay a trustee for providing a report or advice, they must make sure their governing document does not prevent this and follow the legal requirements for paying trustees. The Commission also recommends that the charity’s insurance cover should be checked to find out whether it covers negligent advice given by an adviser who is also a trustee, officer or employee of the charity.
One would expect charities to take advantage of this for sales which are of little or no value (for example, the grant of utility wayleaves, which would still count as disposals). However, it seems likely that arm’s length professional advice will often still be required for trustees to discharge their duties to manage their resources responsibly and satisfy the requirements.
Short leases and mortgages
The requirements for short leases (for a term of 7 years or less) and mortgages remain broadly the same. For short leases, trustees can rely on advice from a person whom they reasonably believe to have the ability and practical experience to provide them with competent advice on the lease. There is no requirement for the adviser to have a professional qualification and it can be a trustee or employee of the charity, but the Commission recommends that they are a member of a relevant professional body.
In the case of mortgages, the trustees must obtain written advice on whether the loan or grant is necessary, whether its terms are reasonable and the ability for the charity to repay the sums due on those terms. Much like short leases, the advice must be provided by someone whom the trustees reasonably consider to have the necessary ability in and experience of financial matters and who has no financial interest in the transaction. Again, the Commission recommends that the adviser is professionally qualified, such as the charity’s accountant or financial adviser, although they can be a trustee or employee.
Short residential leases granted to employees
Normally, consent from the Charity Commission is required when a disposal of charity land is made to a “connected person”. The definition of “connected person” includes the trustees and their close relatives, donors of any land to the charity and their close relatives, employees of the charity and the spouse or civil partner of any of the above.
However, the changes to the rules mean that the Commission’s consent is no longer needed to grant a tenancy of one year or less to an employee to live in the property as their home. This may offer time and cost savings for charities who have resident staff.
Will there be further changes?
Sections 18 and 23 of the Charities Act 2022 are not expected to come into force until the end of 2023. These provisions relate to topics including disposals by liquidators and changes to the statements and certificates that must be included in transaction documentation.
How Moore Barlow can help
The changes brought in by the Charities Act 2022 may offer some cost savings for charities selling land, particularly from the relaxation of the rules for obtaining written reports. However, the changes will not make things substantially easier and the rules around land transactions are still not straightforward. It is therefore important to obtain advice from a lawyer who understands the requirements of charity law before embarking on a land transaction.
Moore Barlow has a long-established reputation within the charity sector, with expertise in all aspects of charity law including charity land. If you require specialist legal advice in this area, please contact our Charities team.