Everything’s changing in charity law: Part five

Acquisitions, disposals and mortgages of charity land

The Law Commission published its report on Technical Issues in Charity Law in September 2017 following a public consultation which revealed that many charities struggle with a range of technical issues in the law leading to unnecessary expense and preventing charities from dedicating their full resources to the public good. On 22 March 2021, the Government published its long-awaited response to the Law Commission’s recommendations and accepted most of the recommendations.

The law governing how charities dispose of land requires them to follow certain rules when they sell, let or mortgage their land. The Law Commission’s consultation considered eight recommendations affecting areas such as the extent to which charity trustees should be compelled to seek advice before disposing of charity land and what that advice should cover so that trustees can access the right levels of professional advice in a way which is proportionate and appropriate to their particular circumstances. The recommendations also proposed simplifying the law about disposing of charity land which has multiple beneficiaries, when it is being disposed of by a liquidator or administrator and the complex provisions around how certain universities and colleges dispose of land.

The Government did not accept two of the Law Commission’s recommendations – as they saw them as important safeguards in protecting charities interests in property. We have covered some of the key issues below.

Qualifications of advisors for charity land transactions
The Law Commission recommended widening the qualifications required of an adviser when considering the sale or letting of charity property and the reporting requirements. The Government accepted that extending the range of specialist advisers who can provide advice in relation to land transactions – to include fellows of the National Association of Estate Agents and fellows of the Central Association of Agricultural Valuers – will give charity trustees more flexibility to determine an adviser that is best placed to provide advice in relation to a transaction, recognising that different transactions should have tailored treatment. Suitably qualified charity trustees, officers and employees will also be able to give advice on property disposals (including mortgages).

They also accepted that the Charities (Qualified Surveyors’ Reports) Regulations 1992 needed be replaced with new, more tailored regulations. Although the requirement for an independent valuation of the property has been retained the proposals allow a suitable adviser to self-certify that they have the appropriate expertise and experience to provide the advice that is required and do not have any interest that conflicts, or would appear to conflict, with that of the charity.

The statutory requirement for trustees to advertise a disposition as advised in the surveyor’s report is being removed. Instead, the onus will be on the trustees to have considered their expert’s advice and act appropriately given the overall circumstances of the transaction and the advice of the expert.

Disposals of charity land to connected persons
The Law Commission recommended that the connected persons regime contained in the Charities Act 2011 (which prohibits disposals to a range of connected persons without Charity Commission consent) be retained.

The Government agreed with this recommendation although accepted that the definition of connected persons should exclude employees where the disposal is the grant of a short residential tenancy; in order to provide some flexibility to charities.

The Law Commission had recommended that the connected person regime also exclude disposals to wholly-owned subsidiaries (provided that the Commission’s guidance made it clear that such disposals should be for the best terms that can reasonably be obtained for the charity) subject to the requirement to notify the Charity Commission of such disposals. However, the Government rejected this approach as it felt that this would be open to potential abuse/mismanagement, particularly as regards conflicts of interests, and that mere notification of such disposals would not give the Charity Commission enough power to prevent improper disposals.

This will be disappointing for those charities that have a larger group structure, such as non-exempt charitable housing providers registered with the Commission, who may frequently look to move property around the group in order to make best use of its assets.

The Government did welcome the recommendation for the connected persons regime to be capable of amendment by secondary legislation and to remove some outdated and unnecessary language from the statute.

Charities Act 2011 certificates in contracts for the sale of charity land
The Law Commission recommended that charities be required to include a statement that the requirements of the Charities Act 2011 have been complied with in any contract for the disposition of charity land and that a contract for a disposition of charity land should be enforceable by a purchaser if such a certificate has been given in the contract (or if such a certificate has not been given but the purchaser has acted in good faith).

Currently some level of protection is afforded to purchasers (or subsequent purchasers) for value upon completion of the appropriate transfer deed/final disposition document – but not at the contract stage. Therefore, purchasers who contract to buy, or take a lease of land from a charity have to check that the statutory requirements have been compiled with, which is onerous and can cause delay and expense. This recommendation was accepted by the Government.

Advertising the disposal of designated land
The Law Commission recommended that the requirements in section 121 of the Charities Act 2011 requiring charities to advertise the proposed disposal of designated land (that is specific land held for the purposes of the charity) should be abolished.

The Government did not accept this recommendation on the basis that designated land status is often of relevance for long standing community assets – such as recreation grounds, almshouses and local school, church or village hall properties. They recognised that proposals to dispose of those types of assets can be highly controversial and/or generate a significant response from the public. Therefore, proceeding with their disposal without a full understanding of the implications (which consultation can input into), including the impact on beneficiaries and the local community could have an adverse impact on trustees’ decision making and public trust and confidence in charities.

The Charity Commission already acknowledges that the public notice requirements in section 121 are not appropriate in every case, but charities can apply to the Charity Commission for specific exemption from them on a case by case basis. The Government and the Charity Commission agreed that the current approach strikes the right balance between the need to protect charity assets and the need for flexibility in a limited number of cases.

Updates to Charity Commission guidance
Finally, keep an eye out for changes to the Charity Commission’s guidance note “Acquiring Land” (CC33) which will reflect some of the accepted recommendations of the Law Commission set out above together with a clearer explanation of trustees’ decision making powers when it comes to acquisitions (as opposed to disposals).

For more information

If you have any questions in relation to any of the matters covered above, please do contact your usual contact in the charity property team or Sarah Tomlinson. 

The full list of our series of ebriefings can be found below:

• Everything’s changing in charity law: Introduction
• Part one: Charity registration financial thresholds 
• Part two: Permanent endowment 
• Part three: Changing purposes/amending governing documents 
• Part four: Remuneration for the supply of goods and the power to award equitable allowances 
• Part six: Cy-pres schemes and the proceeds of fundraising appeals 

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