We often describe the process of buying or selling property as being akin to jumping through hoops in a circus tent. Certain types of transactions attract larger numbers of hoops, and often they can be scarily precarious.
If your charity is hoping to buy, sell or lease property or land… roll up, roll up, it’s time to enter the big top.
The Charity Act
Ladies, gentlemen, honoured guests, let us introduce you to the Charity Act. This handy piece of legislature exists to regulate the way charities function. It’s important in conveyancing as it includes rules for how property transactions involving charities should be managed.
There have been some recent changes in this area thanks to The Charity Act 2022. These `updates are intended to allow more freedom to charities in England and Wales, as well as to save them time and money.
However, we hope it goes without saying that these are still statutory regulations that need to be strictly complied with. If not, the courts have the power to render any non-compliant transactions void, which would certainly put a significant downer on the proceedings.
Who needs to follow the rules?
Most charitable organisations will need to follow these rules, including those that are registered as companies and those that are registered as trusts.
There are some exempt charities, though, which include:
- Educational charities
- Academy trusts
- Institutions of national importance
- Social housing providers
- Church of England and Methodist Church investment funds
If your charity happens to fall into one of these categories, please don’t get too excited. Though you’ll be let off many of the rules and regulations set out in the Charity Act, you’ll no doubt have rules to follow from your principle regulator instead. Swings and roundabouts, we’d say. Or should that be trapezes and tightropes?!
Rules for selling property on behalf of a charity
In order to sell property or land on behalf of a charity, trustees will need to perform something of an acrobatic routine. First of all, they’ll need to ask some key questions. One: do they actually have the power to sell the property or land in question? This will need to be carefully checked in the trust deeds and the charity’s governing document. There is some helpful guidance on how to know if you have the right to sell charity land or property on the gov.uk website. Two: is the land legally designated for a specific purpose other than what it’s being sold for? And three: is the sale in the interest of the charity and those who benefit from it? If the property is being replaced, the trustees will need to show that the replacement is of equivalent value.
Assuming the answers to these questions are encouraging, the trustees will then need to make sure they:
- Sell the property on the most favourable terms possible. They’ll need to get a professional written report to advise on this (originally this had to be provided by a RICS surveyor, but the 2022 act widens this to include professionals who are fellows of the Central Association of Agricultural Valuers and members of the National Association of Estate Agents).
- Accept the best financial offer available. (There are some exceptions to this. Trustees can accept something other than the highest bid if: they choose to sell to a charity with similar purposes instead; if they don’t believe the bidder would be able to complete; the bidder’s intended use of the property conflicts with the charity’s purposes.)
- Provide certificates and statements to confirm how the property is held and that it’s being sold legally.
Most charities won’t need permission from the charity commission to sell, but some will – especially if they haven’t followed the above rules.
Trustees will need to get charity commission approval if:
- They want to sell land for a purpose other than what’s set out in the governing document.
- They want to go against advice given by professionals.
- The governing documents don’t allow them to sell.
- They plan to sell for less than market value.
- They want to sell to someone connected to the charity (such as a trustee, a family member of a trustee or an employee).
If a charity fails to get permission when they should’ve done, they may need to apply part way through the process, which can really slow down the juggling act.
Rules for leasing property on behalf of a charity
If the trustees wish to lease property on behalf of a charity, all the same rules and regulations apply. This includes seeking professional advice and making sure the terms of the lease are as favourable as possible. They will also need to get approval from the charity commission if any of the above five bullet points apply.
There are, of course, some key exemptions here (are you feeling like a contortionist yet?!) Trustees will not need to get charity commission consent if the lease is for less than seven years, no premium or fine will be charged and the property is not let to a connected person. Speaking of connected people, when it comes to leases, the 2022 Act exempts employees. This means charities can now grant leases for a year or less to employees without having to get permission from the charity commission, so long as renting the property to them is beneficial to the charity’s work.
What about if you’re buying or leasing property on behalf a charity?
Trustees who wish to buy or lease property on behalf of a charity will usually be able to do so without charity commission approval.
They will, however, need to:
- Ensure the purchase or lease is in the charity’s best interest. This includes buying land or property in order to bring in an income for the charity.
- Make sure any property or land taken on is suitable for the charity’s needs.
- Make sure any purchase or lease is priced fairly (preferably beneath market value).
- Fully understand any legal obligations associated with the purchase or lease (such as planning restrictions, restrictive covenants, rights of way, etc).
- Be certain that any loan or mortgage terms are reasonable.
Trustees would usually only need to get approval from the charity commission to buy or rent if:
- The charity was buying or renting from someone connected to the charity.
- If the governing document forbids buying or renting.
- If they were planning on using permanent endowment funds.
Trustees buying or taking on a lease on behalf of a charity will also need to consider who’s name will be on the land title or lease. If the charity is a company or charitable incorporated organisation (CIO), the land or property can be registered in the name of the charity.
If not, you will usually need to appoint some or all of the trustees to hold the land/property on behalf of the charity. This should be considered carefully, as it can be a bit of a palaver to re-register property if and when trustees leave.
Alternatively, it may be possible to register charity land to the Official Custodian, which is a free service from the charity commission. Using this service will mean that charity land can be held in the same name, regardless of any changes in trustees.
What about if you’re buying or renting from a charity?
As our encore, we’ll just touch briefly on what you need to know if you’re thinking of buying or renting a property from a charity. Generally speaking, from your end, the process is likely to be fairly similar to buying or renting from anyone else. The main difference is likely to be a bit of a longer wait and a bit more legal back and forwards between conveyancers.
However, you may also find that the seller has a few extra questions for you about what you’re going to do with the property, as they’ll want to be sure it doesn’t go against any of their aims. For example, if you’re buying from a charity that supports people with coulrophobia (that’s a fear of clowns), they’re probably not going to want to sell a property for use as a clown school.
Need help jumping through hoops and telling the lion tamers from the fire eaters? We’re always available to advise on conveyancing for charities.