Last year, I wrote an article concerning the means by which small or grass roots sports clubs (“Club”) can access grant funding and the manner in which such Clubs can improve or enhance their overall prospects of success when applying for grant funding.
This centred on making certain the ownership of Club property, or relevant land interests, and making sure that the Club is either the freehold owner of the land, registered at Land Registry, or making sure that the period of ownership or occupation is certain and long enough for any sporting body and/or grant funder to be satisfied that any grant funding will be utilised for community purposes.
In this article I now look at the means by which such governing bodies seek to protect their interests and/or potentially police the use of any grant funding by the recipient Club. Such measures would usually involve the sporting body and/or grant funder taking the following steps:
- placing a financial charge (akin to a mortgage) on the Club’s title interest to the relevant property; or
- placing a form of public “warning notice” of the existence of any grant funding agreement on the Club’s title interest to the relevant property; or
- imposing a contractual obligation on the Club to use the funding in a certain way.
The governing body/grant funder could look to use one or any combination of the above. This would depend on the nature of the Club’s title interest, the proscribed purpose of the proposed funding and the wider circumstances generally.
Financial charge
Where the Club owns the property “outright” on a freehold basis or where it has a lease which requires registration at Land Registry (i.e. a lease with a contractual term of more than 7 years), then any governing body could seek to place a charge on the registered title to Club’s property and ask the Club to enter into a legal charge with them.
Essentially, this is much like the mortgage to a house – the governing body will give the Club the money, and in return they receive the protection of either being able to prohibit the sale of the Club’s property (by either refusing to remove their charge or refusing to consent to any transfer at Land Registry) or potentially compel the sale of the Club’s property in the worst case scenario. One may think that this seems strange – “It’s a grant, why would they give us money and then sell our property to get it back!”
The reason that governing bodies do this is that they are normally giving large sums of money out for specific purposes. There is a danger that they could pass the money out for the construction of a new practice facility for example, but a Club may decide to spend the money in a different way once it is received. In this instance, the governing body will likely look at the money as having been wasted, and will try to recoup its loss – at the end of the day, they are there to ensure that more people get access to playing more sport.
That being said, none of this is a risk if you spend the money for the purpose you originally intended. Once the project is complete, then you can ask that the granting body removes the charge (normally subject to them checking that the project has indeed been completed to their satisfaction).
Just as an aside – if the sporting body and/or grant funder did look to charge a lease the Club would need to ensure that this is actually permitted by the lease (i.e. it could take place with the consent of the landlord).
Warning notice
Placing a notice on the Club’s registered Land Registry title is effectively a watered down version of placing a charge. Such a notice would not prohibit the sale of the property, nor the transfer of the legal title, but it does give notice to any third party looking at the title to the Club’s property that the Club had received a grant. Further, any prudent buyer is likely to ask that this is properly repaid out of any purchase funds that they send to the club and the notice is removed. This means the notice gives any prospective third party a warning that the sporting body/grant funder has an interest in the relevant land interest that would need to be considered.
Again, this is low risk if you use the funding as it was originally intended, because once any project is complete then the notice should be removed.
Imposing contractual obligations
This is relatively straightforward when compared to registration of any financial charge or warning notice. When the governing body agrees to give you the funds, it would usually send to the Club the paperwork which states the purpose of the funding and which contains provisions stating that the Club will be in breach of its agreement if it does not use the funding in the specific manner stated in the relevant grant funding agreement. If the Club fails to do this, then it is in breach of contract, and could be liable to return the funding (amongst other risks). This is particularly risky when it comes to smaller clubs who are operated by a group of trustees, as there is a danger that the trustees could be personally liable.
Conclusion
Ultimately, the risk here only comes into play if the money is not used as it is intended to be used when the application for funding is first made. This is in exactly the same way that you ask a bank to lend you money to buy a house – you cannot use it for any other purpose. When entering into any arrangement like this, it is imperative that you seek independent legal advice and that you understand that any such arrangement creates binding legal obligations either on the Club or the trustees, or potentially both.
As mentioned in my previous article, I have previously played cricket, tennis and football, and understand the hard work that sports clubs and those dedicated few, who are there rain and shine, do in and for the community. Obtaining grant funding is a great way to build projects for grassroots or indeed more advanced clubs, but equally anyone seeking funding needs to be aware of the implications and associated legal risks that come with it.
If any of this strikes a chord with you, then please contact me or a member of our Sports Law Team.
