Getting the best deal for your charity, while complying with charity law, is part and parcel of being a trustee; but what are the legal requirements when it comes to selling, leasing or mortgaging land that is owned by a (non-exempt) charity?
In this article, solicitor Charlotte Brunsdon of Willans LLP answers some frequently-asked questions.
The trustees want to dispose of (i.e. sell, transfer or lease) charity land – what’s the procedure?
Before any agreement for sale, lease or other disposition is made, an order must be made by the court or the Charity Commission, or you (when I say ‘you’ from here on, I mean collectively as a group of trustees) will need to get specific written advice from a qualified surveyor acting exclusively for the charity. You’ll have to consider this advice, advertise the proposed disposition in the way that the surveyor has advised and be satisfied that you have got the best deal that can reasonably be obtained for your charity.
What if the trustees wish to grant a lease of no more than seven years?
Again, an order must be made by the court or the Charity Commission, unless you obtain the advice of a person who you believe to have ‘sufficient ability and practical experience to provide competent advice’ on the proposed disposition. You must “consider this advice and decide that you are satisfied that the proposed terms are the best that can reasonably be obtained for the charity”. The difference here is that the advice does not need to be given in writing or by a qualified surveyor; the rules are slightly less onerous for shorter term leases compared to the other types of disposal referred to above.
What procedure must trustees follow when it comes to mortgages of charity land?
In this scenario, an order must be made by the court or the Charity Commission, or you’ll need to obtain the written advice of a person who you believe to be appropriately qualified in terms of their ability and practical experience of financial matters. This adviser must not have “any financial interest in the loan, grant or other transaction that is the subject of their advice”. As an example, the adviser could be an officer, employee or fellow trustee of the charity, provided they meet these requirements.
In respect of a mortgage to secure the repayment of a proposed loan or grant, the advice must comment on whether:
- the loan or grant is necessary for the trustees to pursue the particular course of action in connection with which they are seeking the loan or grant;
- the terms of the loan or grant are reasonable considering the status of the charity as the prospective recipient of the loan or grant; and
- the charity is able to repay the loan or grant on the proposed terms.
Are there any specific requirements where the proposed disposal is to a ‘connected person’?
If the disposal of land is to a ‘connected person’ (for example a trustee, employee or officer of the charity or a close relative or business partner of these individuals) or to a nominee of a connected person, the disposal must be authorised by an order of the court or the Charity Commission.
What if the land to be disposed of must be used for a specific purpose (“designated land” or “specie land”), such as a recreation ground or almshouse?
The usual procedure applies again, with some extra steps. You must also give public notice of the proposed disposal, inviting any comments or objections to be made to you within a specified time, and take these into consideration within that timeframe. If the disposal is for the purposes of acquiring a replacement property that will be held on the same trusts, the procedure doesn’t apply. This is also the case if the disposal is the grant of a lease for two years or less and no premium is paid for the grant, or if the Charity Commission gives a direction that this procedure shall not apply.
There are other considerations for disposals of charity land that is designated land or specie land, or held as permanent endowment or on special trusts, and trustees should seek specific legal advice on this.
Do these land transaction rules apply to all types of charities?
Most of these duties will apply to trustees, regardless of the form of the charity. However, there are exceptions, such as where the disposal of the land is authorised by a statutory provision, or where the consent of the Secretary of State is required. You should always take legal advice to make sure you’re taking the correct course of action.
Charlotte is a solicitor in Willans’ Legal 500-rated commercial property & charities team. You can contact her at firstname.lastname@example.org.