In this article, our property litigation legal director, Anna Phillips, discusses pertinent charity land issues. Following consultations into the amendment or abolition of Sections 117-122 of the Charities Act 2011 (CA), some may have come to see the requirements relating to disposal of charity land as a mere inconvenience. However, trustees should be under no illusions.
As the Charity Commission inquiry into the Spiritualist Association of Great Britain Ltd ('SAGB') (published on 30 March 2017) highlighted, failure to comply with disposal requirements amounts to serious misconduct by the charity trustees.
When disposing of interests in property, in essence, non-exempt charities (those registered with the Commission) must:
- not sell to connected persons (watch out the definition of connected person is wide!);
- not (except in some limited exceptions) commercially dispose of land held for a stipulated purpose without first advertising by public notice inviting representations;
- except in the case of leases of less than 7 years, obtain a written report prepared by a fellow of the Royal Institute of Chartered Surveyors which complies with the Charities (Qualified Surveyors) Regulations 1992; and
- for leases of less than 7 years, follow a shorter procedure which nonetheless requires obtaining and considering advice from a person reasonably likely to have the requisite ability and ensuring that the disposal is on the best terms that can reasonably be obtained;
In addition, charities are also required to include in relevant property documents statements confirming both the need for, and the fact of, compliance with these rules.
Sadly, the rules are not always easy to follow, the definition of 'disposal' is wide and the exceptions can be opaque. The importance of the rules can be overlooked by trustees and by some non-specialist conveyancers alike. How many trustees simply sign property documents having had little or no involving in the prior transaction? It is, therefore, worthy of emphasis that when signing a property deed including the necessary certificate of compliance, a trustee who is not certain of compliance may be inadvertently commit a fraud. Trustees must satisfy themselves of compliance before signing!
In the case of the SAGB enquiry, the Commission found that trustees had failed to comply with restrictions on disposal of charity land and specifically that they have failed to:
- conduct proper (or any) due diligence on the prospective purchaser to satisfy themselves that the offer for the property was sound and that the charity would not be unnecessarily exposed to risk by contracting with it;
- obtain specialist independent advice on how to achieve the maximum return on the property disposal where the post-disposal value was likely to appreciate considerably;
- obtain, follow or conduct any proper account of appropriate professional advice. In particular, the regulator highlighted that the charity trustees had initially instructed solicitors who were not charity law specialists as well as a surveyor who did not meet the statutory qualification requirement and she prepared two valuation reports that did not comply with the Charities (Qualified Surveyor's Reports) Regulations 1992 (SI 1992/2980).
With the final point in mind one can't help feeling that the trustees were badly let down by their advisors, however, the choice of advisor, was of itself, considered by the Commission as a matter of mismanagement!
Despite its finding of serious mismanagement, the Commission decided against further action as the likelihood of being unable to unpick the 2010 transaction was remote and would require demonstrating bad faith on the part of the purchaser who could otherwise rely on the saving provisions within the CA which protect purchasers. The conclusions of the enquiry nonetheless serve as a stark warning to charity trustees that proper advice and action should be taken in relation to disposals of charity land. It should also not be forgotten that, whilst the express rules may be less cumbersome, proper advice and action should also be taken for acquisitions!
To discuss charity land further please contact Anna at firstname.lastname@example.org or on +44 (0)1392 685241.