The Department for Culture, Media and Sport (DCMS) has indicated to the Charity Law Association that it is aiming for the provisions in the third tranche of Charities Act 2022 (Charities Act) reforms to be commenced in March 2024.
This article provides a high-level reminder of the changes which relate specifically to the disposal of land which are already in force and the key reforms to the rules governing charity land (including changes to the information that must be included in statements and certificates for both charity land disposals and mortgages) and charity mergers we are now waiting to be brought into force in the Spring.
It is coming into force in stages to allow for the necessary guidance to be updated. Some of these changes specifically impact on property or land held by charities or charitable trusts.
Charity land – changes introduced from 14 June 2023
A number of changes have already come into force which relate to land owned by charities.
Restrictions on disposing of and mortgaging charity land
Broadly, the restrictions state that a charity cannot dispose of land without the consent of the Charity Commission. However, Charity Commission consent is not required if the charity trustees either obtain advice from a qualified surveyor and consider and follow that advice or comply with a procedure for granting short leases.
The purpose of the restrictions is to protect charities from imprudent decisions regarding such valuable assets and ensure land is only disposed of on the best terms.
These restrictions used to apply to all charity land. However the Charities Act has now changed how the restrictions apply and confirms that the restrictions will only apply where the whole of the land which is being disposed of is held either:
(i) By a charity for its own benefit and not as a nominee or in a trust for another person
(ii) In trust solely for the benefit of that charity.
Therefore, the restrictions now apply where:
- A trustee holds land on bare trust for a single charity
- Land is left to a charity in a will and the executor has appropriated the land to the charity
- A charity owns land as one of several tenants in common but is disposing of only its share.
The restrictions will not apply where:
- A charity is one of several joint owners of land and the land is being disposed of in its entirety
- Land is left to multiple beneficiaries (including one or more charities) under a will and the executor has appropriated or assented the land to those beneficiaries.
A real life example of how this change has been beneficial occurs where a number of charities are the residuary beneficiaries under a will. Previously if the executors and beneficiaries wanted to sell the land in the estate each of those charities was required to obtain a surveyors report. Following the changes, it is now possible for just one charity to obtain the report and share it with the other charities thus reducing expense.
Even with the changes made to the restrictions it is still very important to ensure the disposal is in the best interests of the charity and that the best price is achieved.
Who can provide reports?
Other changes already made by the Charities Act relate to the surveyor’s report which needs to be obtained in order to avoid the need for Charity Commission consent. Previously, the individual preparing the report had to be a member of the Royal Institution of Chartered Surveyors. However, the Charities Act now allows reports to be produced by fellows of both the National Association of Estate Agents and the Central Association of Agricultural Valuers in addition to chartered surveyors.
Additionally, the charity will also be able to rely on a report prepared by an officer, employee or trustee of the charity if they are not conflicted and have the relevant skills needed to prepare the report.
Again when making a decision, it is important to consider who is best placed to advise the charity fully as some qualifications provide more relevant experience than others.
Content of reports
Another change is to the content of the report which needs to be produced. Previously, there was a very rigid framework for the report but now the requirements for the reports are less prescriptive providing broad categories of advice which must be included. This gives the person preparing the report more discretion about what information needs to be included.
The report will now need to cover:
- The value of the land
- Any steps which can be taken to enhance that value
- Whether the land should be marketed and, if so, how it should be marketed
- Anything else which can be done to secure the best terms for the charity
- Any other matters of which the adviser considers the charity trustees should be made aware.
This may reduce the cost of the report and avoid unnecessary information being included but practically this means that the charity is likely to need to be more involved in the process of obtaining the report to ensure that all of the information they need is provided.
Advertising a disposal of land
Previously, charity trustees were required to follow the surveyor’s guidance on advertising a disposal of land. They now have discretion when deciding how to advertise a proposed disposal and even whether they consider advertisement necessary.
The Charities Act also removes the requirement for charities to get Charity Commission authority to grant a residential lease to a charity employee for a short periodic or fixed term tenancy. Charity trustees now only need to obtain advice on granting of the lease.
Transferring charity land – changes to be introduced in March 2024
Dispositions to other charities
At present, if a charity is transferring land to another charity for less than market value, there is generally no need to go through the process of getting advice and a report and ensuring that the trustees have approved the terms of the transaction as being the best that can be reasonably obtained for the charity.
However, this broad approach is not always appropriate as often the charity transferring the land still wants to receive a financial return. This is especially so if the disposal of the land is in the course of social investment. When a charity makes a social investment there is always some level of financial return but there must also be some level of charitable return, as part of the investment is to further the purposes of the charity.
Therefore, when this section of the Charities Act comes into force it will confirm that the general requirements for disposing of land will still apply when:
- A commercial transaction is entered into with another charity under which the charity disposing of the land is still trying to achieve the best price that can reasonably be obtained
- A social investment is made by the disposing charity which broadly means a transaction under which the charity is looking to obtain both a financial and charitable return.
In such cases the requirements will be strengthened and will, when in force necessitate the obtaining of a report on the property and consider whether a disposal is in the best interests of the charity.
Dispositions by liquidators, receivers and mortgagee or administrator
The Charities Act will also provide that a disposition by a liquidator, receiver, mortgagee or administrator of land held by or on trust for a charity will not be captured by the rules on disposing charity land, because those individuals already have a professional duties regarding the disposal of land.
Changes in statements to be included in contracts
Additionally, the Charities Act will require charities to include in a contract for a disposition of charity land a statement that the disposition has been sanctioned by the court or the Commission or that there is power under the trusts of the charity to effect the disposition and that relevant laws have been complied with.
Currently charity trustees only need to make these statements in the document effecting the disposition (for example the transfer of land but not the contract or agreement to make the disposition). Once the change comes into effect, the requirement to include statements in land disposal documents will be the same at each stage of the transaction and in both the contract and the subsequent transfer will need to contain the statement.
The purchaser and mortgagee protection rules will also be amended so a statement in a contract for a sale or mortgage is conclusively presumed to be true in favour of the person enforcing the contract. Additionally, if no statement has been given in the contract, it will still be enforceable in favour of a person who has entered into the contract in good faith.
This change means that a charity can no longer rely on its own failure to comply with the rules to avoid completing a contract for the disposal of an interest in its land.
We hope that the reported timeline for these provisions to come into force in March 2024 is met but the timetable has been pushed back on more than one occasion so we will wait what date the DCMS puts in its implementation plan when it is finally updated. If you have any questions about the points raised in this article, please get in touch.