In this second article in our series discussing arrangements between businesses and charities, we take a look at key requirements and points to check when you have a charity on the other side of a property transaction. The points raised in our first article around contracting with charities apply equally to property transactions – see our March 2015 newsletter.
Charities very often own land, either that they use as part of their charity's operations (a school's buildings for example), or by way of investment. Indeed some charities have considerable property portfolios, the value of which stretch into many millions, and for some charities it is part of their raison d'être – charities involved in social housing in particular.
Given that a charity's real property can very often be its most valuable asset, there are strict statutory rules as to what charities must do when disposing of their land. There are different rules for charities registered with the Homes and Communities Agency, and those whose principal regulator is not the Charity Commission (for example further education colleges and academies) as well as specific rules concerning charging of charity land - these are outside the scope of this article.
Selling land to a charity
If your organisation is selling land or granting a lease or other interest in land to a charity then, other than confirming with them that they have the power to enter into the transaction, and ensuring that the statements concerning the future ownership of the land by a charity that are required by HM Land Registry are included in the transfer agreement, there isn't much for you to do. The onus is on the charity to ensure that it is getting a good deal, and the charity needs to do its due diligence properly to ensure that its trustees aren't acting in breach of its powers.
Acquiring an interest in land from a charity
It is where your organisation is acquiring any interest in land from a charity, that statutory requirements come in to play. It is worth bearing in mind that this includes not only freehold and leasehold transactions but also surrenders of leases, grants of easements and grants of rights of way – essentially any disposal other than a mortgage, other security, or advowson.
The starting point is section 117 of the Charities Act 2011, which states that charities cannot dispose of an interest in land without the consent of the Charity Commission or Court unless they can comply with the statutory process, or unless one of the exemptions listed in section 117 applies (in either case the involvement of the Charity Commission can then be avoided).
The statutory process involves the charity, before exchange of contracts:
- obtaining and considering a written report from a qualified surveyor instructed by the trustees and acting exclusively for the charity;
- advertising the proposed disposal as advised by the surveyor; and
- deciding, having considered the report, that the terms on which the disposal is proposed to be made are the best that can reasonably be obtained for the charity.
There are slightly watered down requirements specifically for leases under 7 years, but the trustees still need to comply with them. Even where the transaction in which your organisation is involved is small, the charity still needs to comply with all its obligations, there is no ‘de minimis’ value below which these obligations can be ignored.
The Trustees then need to include a correct statement concerning the current ownership of the land, and a certificate by the trustees in the transactional documents, confirming that they have either complied with the statutory process, obtained an order from the Charity Commission, or fall within one of the exemptions mentioned below.
You should make sure that the transactional documents contain the appropriate statement and certificate because if it does, you can assume that the trustees have complied with all the statutory requirements. If the certificate wording isn't in there, then alarm bells should ring – either the trustees (or indeed their professional advisors) aren't aware of the charity law requirements, or they are but haven't complied with them.
While there is protection within the Charities Act for purchasers who acquire land from a charity for money or money’s worth and in good faith even where the trustees have not complied with their obligations, if you are concerned about non-compliance then you should raise this with the charity before exchange. This will be particularly important in any transaction where no money is changing hands, as the statutory protection for you as purchaser will not apply and could put into question the validity of the transaction.
As mentioned above, there are circumstances in which either a charity must obtain the consent of the Charity Commission before you acquire the interest, or does not need to comply with the statutory requirements. The former includes where your organisation as the entity acquiring the interest is connected to a trustee of the charity or to a member of a trustee’s family. The latter includes where your organisation is a charity which has similar charitable objectives to the charity in question and you acquire the interest for less than best value, or where your organisation is a beneficiary of the charity in question (which will be uncommon).
In addition, there are extra hoops for charities to go through if they are disposing of land expressly held for specific purposes (for example land held by an almshouse charity used to further its charitable objects). If any of these special cases might apply, the best option is to seek advice to ensure that you have all points covered.