Disposing of Charity Land: Getting it wrong!
It is all too easy to get it wrong. Unless exempt by law (exemption applies to, for example, most housing associations, various higher education institutions and Academy proprietors) charities must comply with Sections 117-122 of the Charities Act 2011 on a “disposition” of any of their land. Exempt charities have their own legal obligations which can be similar but we won’t go into them here.
The word “disposition” includes transfers and leases but also mortgages and even the grant of easements. Mortgages are dealt with in other parts of the Charities Act and, again, we won’t go into the law relating to the mortgaging of charity land, here.
Trustees who get it wrong could find themselves liable to the charity and in trouble with the Charity Commission. Of course, the charity too could be in hot water.
Section 117 says that charities may not dispose of land without an order from the Court or the Charity Commission, subject to a number of exceptions. The most common exception is where, before exchange of contracts (if any), the charity obtains a report from a qualified surveyor which complies with The Charities (Qualified Surveyors’ Reports) Regulations 1992. Also, unless the surveyor’s report advises otherwise, the proposed disposition must be “advertised” to the market, so the trustees are confident of getting the best offers. The trustees must then consider the report and can then proceed if they are confident that they are getting the best terms for the disposition that can reasonably be obtained.
Less onerous procedures apply where a lease for no more than 7 years is to be granted.
Failure to comply with the necessary procedure will mean that any contract entered into is void. This could be a serious problem for the purchaser as well as an embarrassment to the charity.
The actual transfer or letting, or whatever is proposed, will also be void, unless an order from the court or the Charity Commission is obtained before completion or the following apply. The disposition will not be void if there is a certificate in the form required by law in the transfer or lease or other completion document, which states that the Charities Act has been complied with – but, if the trustees know they have not complied with the Act, they shouldn’t give the Certificate.
If the acquirer of the property is a purchaser in good faith paying money or money’s worth, again the disposition will not be void. However, if they knew (which they would if there was a Charities Act statement, in the contract, that the seller is a charity bound by the Act) or, perhaps, ought to have known that the seller or landlord was a charity, they should have asked why there was no Charities Act certificate in the disposition and so may not be able to show “good faith”.
Public notice: where the trusts on which land is held “stipulate that it is to be used “for the purposes, or any particular purposes, of the charity” (Section 121) then the charity trustees must, subject to some exceptions, also give public notice of a proposed disposal before entering into a sale contract, to give the public and those interested in the charity a chance to comment. It is not open to the surveyor to advise that no public notice should be given.
Public notice is not required where the disposition is with a view to acquiring replacement property to be held on the same trusts or it is a lease for no more than two years granted only in consideration of the rent. It is also open to ask the Charity Commission for consent not to give public notice, if the Commission agree that it will be in the charity’s best interests not to give public notice.
Failure to give public notice will not make the contract entered into void but will mean that the subsequent transfer, lease or easement etc. will be void, unless the disposition included a certificate of compliance with the Charities Act (which it should not, if the trustees are aware of their breach) or the acquirer acted in good faith and were purchasers for money or money’s worth – but see above on that.
The restrictions and hoops to go through on sale are that much greater where the property is permanent endowment, special trust land, in specie land or designated land. In many such cases, the consent of the Charity Commission or even a Charity Commission Scheme will be required prior to a disposal. We will go into those types of land in another blog.
For help to get it right, please contact Simon Schipper in our charities team.