Last week, the Department for Culture, Media and Sport announced the implementation of the second stage of changes (out of a three-stage process) introduced by the Charities Act 2022.
Although the Act is not a major overhaul of charity law, some of the changes implemented will remove technical obstacles in charity law to reduce regulation. This will affect how charities sell, lease or otherwise dispose of charity land. Here, Solicitor and charity law specialist Imogen Trafford explains the tweaks to the current rules and the new powers granted to charities.
Disposing of Charity Land
When it comes to selling, leasing or transferring a charity’s land, the trustees must ensure they comply with certain provisions in the Charities Act 2011, as now updated by the Charities Act 2022. Otherwise, the transaction could be set aside as void or voidable, or the trustees could be held liable for breach of trust.
The default situation as set out in Part 7, s. 117(1) of the Charities Act 2011 requires all disposals of charity land that fall within the regime to obtain an Order from the Charity Commission or the Court. However, in the majority of cases where trustees can comply with certain prescribed requirements outlined in the Charities Act 2011, they will not be expected to obtain such an Order or Scheme.
Suitable expert advice should be obtained in this regard in each instance.
Changes to Charity Land Transactions by the Charities Act 2022
1. Widened category of advisers
Where charities are required to obtain written advice relating to certain disposals of their charity’s land, they can still choose to instruct a qualified RICS surveyor to prepare such written advice. However, there is now much greater flexibility as to who else charities can instruct.
The 2022 Act replaces the term ‘qualified surveyor’ under s. 119 of the Charities Act 2011, with ‘designated adviser’ widening the pool of those who can prepare such reports to fellows of the National Association of Estate Agents and the Central Association of Agricultural Valuers, as well as existing trustees, officers and employees of the charity who have the appropriate qualifications.
Previously, reports had to be prepared by a qualified RICS surveyor, some of whom do not always have the required expertise in relation to specific transactions. In practice, this meant that some charities had to pay for two advisers in relation to certain transactions - firstly, a qualified RICS surveyor to satisfy the Charities Act 2011 requirements, followed by another suitably qualified valuer (such as an agricultural valuer) who had the requisite expertise. This resulted in unnecessary additional costs for charities.
2. More flexible valuation reports
The Act will also require that the written report prepared by such designated advisers only 'deals with such matters as prescribed by the regulations'. As a consequence, it is anticipated that the requirements set out in the Charities (Qualified Surveyors’ Reports) Regulations 1992 will be simplified or replaced with less restrictive provisions to reduce the time spent preparing such reports (and therefore the costs to charities).
The provisions are expected to be replaced with new ones that require advice on:
- what sum to expect (or, if an offer has already been made, whether the offer represents the market value of the land)
- whether (and if so, how) the value of the land could be enhanced
- marketing the land (or, if an offer has already been made, any further marketing that would be desirable)
- anything else that could be done to ensure that the terms of the transaction are the best that can reasonably be obtained for the charity.
In practice, the list of matters that must be covered in valuation reports often resulted in the cost of obtaining a surveyor’s report being ‘out of all proportion’ to the value of the land and the low value of a transaction, such as the grant of an easement or the sale of a small strip of land. This meant that many charities were required to obtain a chunky and costly valuation report (usually priced anywhere between £400 to £2,000 per report) to cover many unnecessary details for a relatively low value and low risk transaction.
The simplification of the matters to be included in the valuation report should reduce the time spent preparing such reports and consequently, disproportionate costs to charities in certain circumstances.
3. More flexibility in statutory statements within documents effecting transfers
The new Act removes the obligation placed on trustees to provide certain statements within the transfer/disposal documentation (such as the Transfer Deed). Under the new Act, the obligation to comply with the requirements of the Act before disposing of the property will be imposed on the charity instead of the charity trustees.
This means that trustees no longer need to sign a certificate to confirm that they have gone through the procedure of obtaining a report and considering that report correctly, making the preparation of such documents more straightforward and less time-consuming for charities and their conveyancers.
4. Connected persons
Finally, the Charities Act 2011 previously prohibited the disposal of charity land to any ‘Connected Person’ without first obtaining an order from the Courts or Charity Commission.
Under the 2011 Act, ‘Connected Persons’ includes the employees of a charity. This caused issues for many charities, particularly where they intended to provide an employee with accommodation by way of an assured shorthold tenancy. By way of example, charity schools often provide a headmaster/headmistress with accommodation on school grounds by virtue of their position and church charities often provide the Vicar of their Parish with accommodation too.
The Charities Act 2022 has slightly moderated the definition of ‘Connected Person’, so that employees will no longer be considered ‘Connected Persons’ where a disposal to them is for a fixed term lease of one year or less and is intended to be used as the employees’ home. This removes the burdensome requirement to obtain the Charity Commission’s or Court’s prior approval for such a short-term lease.
Trustees should take professional advice
As stated above, these provisions of the Charities Act 2022 came into effect last week (14 June 2023) and as always, the devil is in the detail. The tweaks to the current rules and processes will make life easier for charities, but trustees should take professional advice as to how much of a more relaxed approach they can take to such transactions, perhaps erring on the side of caution.
Whether your charity is seeking to buy, sell, transfer, lease or mortgage property, the regulations surrounding charity property dispositions can be complicated and technical. Our specialist team of charity lawyers can advise you across a range of the issues involved.
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