Michelmores Real Estate Soundbite: charity considerations when selling or letting property
Usually, non-exempt charities must follow a statutory procedure when looking to sell property or grant a lease (amongst other dispositions). This Michelmores Real Estate Soundbite considers some of these procedures. (Statute does provide for various transactions to which these procedures do not apply, for example, a lease granted by a charity in accordance with its trusts for less than market rent to a beneficiary under its trusts who will occupy the land for the purposes of the charity. Other excluded transactions are not covered further in the scope of this Soundbite).
A non-exempt charity is a charity which is registered with and subject to regulation by the Charity Commission. Under the Charities Act 2011 (CA) a non-exempt charity must obtain an order of the court or the Charity Commission to dispose of land, unless the charity follows the procedure contained in section 119, 120 or 121 of the CA. This is assuming the disposal is not made to a connected person; in which case an order of the court or the Charity Commission will always be required.
The Section 119 Procedure – Sales and Long Leases
Before the trustees of the charity enter into any agreement to sell property, grant a lease for a term of more than 7 years or other disposition of the land, they must obtain a qualified surveyor's opinion on the proposed disposition. This is sometimes referred to as a "Section 119 Report".
For these purposes, a "qualified surveyor" will be a fellow or professional associate of the Royal Institution of Chartered Surveyors, specifically with experience of valuing similar kinds of property or land in the same geographical area. The surveyor must be instructed by the trustees and be acting exclusively for the relevant charity.
The Section 119 Report must contain certain prescribed details laid out in statute; these include a description of the land and any relevant easements and the surveyor's opinion regarding the value. Crucially, the charity must be satisfied that, based on the report, the proposed terms of the relevant disposition are "the best that can reasonably be obtained for the charity"; this generally alludes to best value for money.
If the Section 119 Report recommends that the proposed sale or lease be advertised in a particular way, the charity must also follow this recommendation.
The Section 120 Procedure – Short Leases
The procedure is more straightforward where a non-exempt charity intends to grant a lease for a term of 7 years or less. Before entering into any agreement to lease the property for such a short term, the charity trustees must be advised on the disposition by "a person who is reasonably believed by the trustees to have the requisite ability and practical experience to provide them with competent advice on the proposed disposition". In practice, this advice does not need to be written and the advisor does not need to be a qualified surveyor (although, generally, a surveyor may still be the best person for the job).
Based on this advice, the charity trustees must satisfy themselves that the proposed terms on which the short lease is proposed to be made are "the best that can reasonably be obtained for the charity". This is a similar standard to that described above.
The Section 121 Procedure – Land Held for the Purposes of the Charity
In addition to the section 119 or 120 procedure and unless the Charity Commission orders otherwise, where the land to be disposed of is used for the purposes of the charity (usually in accordance with a trust), the charity trustees must also notify the public and invite representations for or against the proposed disposition. The charity trustees must then consider any such representations which are made within one month of the notification, before proceeding to agree the disposal.
It should be noted that public notification is not required if the charity intends to procure replacement land to be used for the charity's purposes under the same trust; or if the disposal is the grant of a lease for a term of 2 years or less without a premium or fine.