In the first of a series of articles addressing the pressures on charities to find alternative sources of funding as the impact of COVID-19 bites, we take a look at the option for a charity to dispose of surplus land in order to raise funds.

Land can be held by a charity on trust to further its purposes or subject to more restrictive trusts limiting how is can be used and whether it can be sold.

Before charity trustees can dispose of charity land they must consider whether:

  • They have the power to make the disposal.
  • The disposal is in the best interest of the charity.
  • The charity owns the title to the land.
  • The terms of the disposal are the best that can be obtained for the charity.
  • Consider whether consent from the Charity Commission is required.

Power to dispose

Charities can only dispose of land if they have the power to do so.   Trustees of incorporated charities are usually given the power to act on behalf of the charity by an express term to that effect in their constitutions together with an express power to dispose of land.  Unincorporated charities such as trusts and associations may not have an express power but can make use of section 280 of the Charities Act 2011 (the “Act”) to resolve to give themselves the power to dispose of land subject to the provisions of the Act.  Further advice should be taken if the trustees are considering the use of this provision as there are limits to the extent to which this can be used.

Statute also gives trustees of land the power of absolute owner by virtue of section 6 of the Trusts of Land and Appointment of Trustees Act 1996.

Trustees should check that their constitution does not restrict or limit any power to dispose of land.

Disposal in the best interest of the charity

When considering the merits of a disposal of charity land the trustees need to ensure that they are exercising their power of disposal in a way that is compatible with the trusts of the charity.

As with all decisions made by trustees they have to exercise this power in the best interests of the charity.  In addition, the Act requires that any disposal of land requires the prior approval of the Charity Commission or the court.  This is to ensure that such a fundamental charity asset is not disposed of at undervalue.

The Act however then goes on to provide a statutory self-certification procedure whereby if certain steps are followed (the aim of which is to ensure that best value is obtained or the disposal is directly to further the objects of the charity) the trustees can dispose of the land without recourse to the Commission or the court. Sections 117-123 of the Act require that independent advice is obtained to help inform the trustees’ decision whether the terms of any proposed disposal are the best that can be reasonably obtained.  Except for a lease of 7 years or less the advice must be from a qualified surveyor and his/her report must comply with Charities (Qualified Surveyors’ Reports) Regulations 1992.  In the case of a lease of 7 years or less the advice needs to be from a person the trustees  reasonably believe to have the requisite ability and practical experience to provide competent advice on the disposition (see section 120 of the Act).

The applicable provisions of section 117-123 of the Act must be followed or the charity risks rendering a transaction void for failing to comply with the provisions to the letter.  The trustees also risk exposing themselves to personal liability if they are found to have acted in breach of trust and liable to account to the charity for any loss suffered by it as a result.

There are some exceptions to the requirement to obtain best value the most notable one being a disposal of land to another charity which is authorised by the trusts of the disposing charity.   An example would be if the disposal of the land forms part of a merger between two charities with the same objects and there is a power to dispose of the land to further the purposes of that charity.  Another exception is the granting of a lease to any beneficiary in accordance with its trusts and it is intended that the property is occupied in order to achieve the purposes of the charity.

Ownership of land

The Charity needs to be satisfied that it owns the land.  Not only that, it needs to be satisfied that the land is not subject to restrictive trusts or is otherwise encumbered by third party rights such as a chargeholder whose consent to sale will be required.

Examples of restrictive trusts include a prohibition on the sale of the land (permanent endowment) or a requirement to use the land for specific purposes of the charity (designated land).

There are special rules relating to designated land and permanent endowments the purpose of which is to ensure that charitable assets that have been given on specific terms are retained or transferred subject to those terms. The Act does provide limited exceptions permitting disposal but only where public consultation has taken place and/or the Commission is of the view that the proposed transaction is in the best interests of the charity or the transaction is furthering the objects of the charity.

Terms of disposal are the best that can be obtained

What amounts to the best terms that can reasonably be achieved is for the trustees to decide having taken into account the independent advice mentioned earlier.  That independent advice will be focused on how the charity can maximise the return or price for the land.

The trustees do not have to follow the advice of the surveyor unless he advises that the land/ property should be advertised. But having taken expert advice the trustees would have to have good reasons not to follow it. Ultimately the trustees have to decide that the terms of any disposal are the best that can be reasonably obtained and this usually means they must accept the highest price offered.  The trustees may wish to take non-monetary factors into consideration other than price but we would advise against these taking priority over price. 

Consent of Charity Commission required?

The consent of the Charity Commission is required if the trustees do not have the power to dispose of the land, are unable to comply with the applicable provisions of the Charities Act or are proposing to dispose of the land to a connected party (such as the sale of charity land to a trustee).  If any of these apply then the trustees need to apply to the Charity Commission for permission to dispose of the property. 

If you are considering disposing of charity land or interests in land we have specialists in Charity law and specialist property lawyers here to help and guide you through the process. Please contact Katie Dawson, in the first instance, on 01904 561408 or katie.dawson@luptonfawcett.law

 

Please note this information is provided by way of example and may not be complete and is certainly not intended to constitute legal advice. You should take bespoke advice for your circumstances.

Get In Touch Today!

Get In Touch Today!

Please complete this form to make an enquiry and we will get back to you as soon as we can.

Remember you can still call us on 0333 323 5292 or email us at law@luptonfawcett.law

  • This field is for validation purposes and should be left unchanged.