Charities are subject to a heightened set of requirements contained within the Charities Act 2011 (referred to as “CA 2011” in this guidance) (and amended by the Charities Act 2022 (referred to as “CA 2022” in this guidance)) when it comes to disposing of property. A disposal is defined by the Charities Act 2011 and includes a sale and lease.
So, what is the first thing for a charity to consider on a disposal?
If a charity is considering selling or leasing property, the first thing to check is whether the charity is exempt, non-exempt or excepted.
Exempt charities are those which are not directly governed by the Charity Commission (usually because they are supervised by a government department or other public body). Whereas, non-exempt charities will be governed by the Charity Commission and will need to comply with all of the relevant requirements of the CA 2011 and CA 2022.
Excepted charities are those which comply with various criteria, for example, where they have an income of lower than £5,000.
The majority of charities will be non-exempt and, therefore, the remainder of this article will focus on these types of charities.
Our charity is non-exempt, what do we do next?
You should check your charity’s status and their governing document to ensure that the charity has the power to dispose of the property.
The governing document (i.e. the Trust Deed or Articles of Association) will tell you whether the charity has the power to dispose of the property. If it does not, you will need to apply to the Charity Commission for consent to dispose of the property.
You should also check how the property is held by the charity. Is the property held by way of a permanent endowment (property that a charity must keep and cannot spend as income) or designated land (property that must be used for a specific purpose)? If it is held by way of a permanent endowment, then the disposal will be subject to the restriction on dispositions contained within the CA 2011 and CA 2022.
What are the requirements of the Charities Act relating to disposals?
If the disposal is not exempt from the requirements of the CA 2011 and CA 2022, then you will need to;
a) obtain a written report on the proposed disposition from a designated adviser acting exclusively for your charity. A list of what should be included within the report is contained within The Charities (Dispositions of Land: designated Advisers and Reports) Regulations 2023.
A designated adviser can be a charity trustee, officer or employee, however, you must be satisfied that your adviser has the ability and experience to value the type of property being disposed and should have no interest which conflicts with that of the charity.
b) advertise the disposition and ensure that the terms of the disposal are the best that can reasonably be achieved by the charity; and
c) the trustees should be satisfied that the terms of the disposition are the best that can reasonably be obtained by the charity.
The requirements for a lease with a term of over 7 years are the same as above. If your charity is proposing to grant a lease with a term of 7 years or less, the requirements are less stringent. Instead, the charity should;
a) obtain the advice of a person who is reasonably believed by the trustees to have the requisite ability and experience to provide them with competent advice on the proposed disposition; and
b) decide that they are satisfied that the terms of the lease are the best that the charity can reasonably expect to achieve.
It is important to note that if the proposed lease falls inside the provisions of the Landlord and Tenant Act 1954 (the tenant has tenancy protection under the Act and is entitled to a new lease at the end of the initial term) and the term overruns the 7 years, the charity could be in breach of the requirements of the CA 2011 and CA 2022.
Is the disponee a connected party or employee?
If the disposal is to a connected party (as defined in the CA 2011 and amended by the CA 2022), then you will require the Charity Commission’s consent.
The CA 2022 has amended the CA 2011 to remove the requirement for charities to get Charity Commission authority to grant a residential lease to a charity employee for a short periodic or fixed terms tenancy (12 months or less).
I have the report, what next?
If you have not already, you will need to appoint a solicitor to prepare the instrument that will dispose of the property (i.e. the transfer deed or lease) and complete the disposal.
A solicitor will need to see the report to ensure that it complies with the requirements of the CA 2011 and the CA 2022 and contains the necessary statements.
The solicitor will then draft the instrument to comply with the terms of the CA 2001 and the CA 2022, including ensuring that it contains the required statements, correct execution clauses and will also advise you on whether any tax is payable (i.e. if the charity pays a premium to a tenant to surrender a lease then stamp duty land tax may be payable).
If you are a charity and require further information or advice on a disposal, please do not hesitate to contact a member of the Ellisons’ Commercial Property team.