Changes for disposing of property under the Charities Act 2022
It has long been recognised that charities are subject to heavy administrative burdens when disposing of interests in property, which often impacts a charity’s ability to further its charitable purposes.
Currently, trustees of charities wanting to dispose of an interest in property, including sales or leases over 7 years, or granting rights or easements and releasing restrictive covenants, are subject to restrictions contained in the Charities Act 2011. This includes the need to obtain a written report from a qualified surveyor as to how best to structure any disposal so that the charity gets the best deal reasonably obtainable.
At present, “qualified surveyors” must be fellows or professional associates of the Royal Institution of Chartered Surveyors (RICS) and have experience and ability in the valuation and disposal of the type of charity-owned property in question.
The purpose of the restrictions is to protect charities from imprudent decisions that would not be in their best interests and to ensure they obtain best terms before disposing of land. However, complying with the requirements can be costly and can delay transactions.
The new Act, being implemented in stages, aims to reduce the administrative burden on charities, saving both time and money, whilst allowing charities to focus their efforts on their charitable work. The Act is welcomed by the sector and, while the changes are largely technical, they are designed to make a positive and practical difference.
The Act protects charity land whilst ensuring that charities can deal with disposals of charity land in a way that is proportionate and appropriate.
Furthermore, the Act introduces additional flexibility in terms of who can provide advice, what the advice should cover, the form it should take and the requirement to advertise. This more flexible, less prescriptive approach is likely to be welcomed by charities which regularly dispose of property, but may make the rules harder to navigate for less experienced trustees.
Who can provide advice
The category of those who can give advice to charities on land disposals has been expanded. The Act substitutes reference to a "qualified surveyor" with "designated adviser", which reflects the fact that those who are not members of the Royal Institution of Chartered Surveyors (RICS) may now also provide advice. This will allow advisers from the National Association of Estate Agents and the Central Association of Agricultural Valuers to work with charities on disposals, where applicable.
The Act also allows advice or reports to come from charity trustees, officers and employees who are qualified, including where the report is provided in the course of employment. It has yet to be seen whether charities will be inclined to adopt this option or prefer to rely on insured professionals against whom recourse could be sought in the event of errors.
Trustees are likely to want to be satisfied that, whichever type of designated adviser they instruct, they have the appropriate qualifications, are professionally regulated and have suitable professional indemnity insurance in place, where appropriate. They must also ensure they do not have any interest that conflicts with that of the charity, particularly if he or she is to be paid for the advice.
What the advice should cover
At present, trustees are required to obtain a written report covering the matters specified in the Charities (Qualified Surveyors' Reports) Regulations 1992. The Act significantly simplifies this requirement by replacing the regulations with a requirement for a designated adviser to provide advice principally around the value of the relevant land and any steps which could be taken to enhance that value.
The designated adviser will also be required to provide advice on how the relevant land should be marketed, and on anything else that could be done to ensure the terms on which the sale is made are the best which can reasonably be obtained for the charity. The adviser will also be required to advise on any other matters they believe should be drawn to the attention of the charity trustees.
On the one hand, this should give advisers greater flexibility to advise on the matters they regard as most significant to the transaction in question; on the other hand, there is a risk that potentially important matters, such as the existence of unhelpful restrictive covenants, may be overlooked by a less experienced adviser.
The amendments also reduce the occasions when a report is required, meaning that a charity acting as a nominee or in trust for another person will not be subject to the restrictions.
No requirement to advertise
The Act removes the requirement for charity trustees to advertise a proposed disposition in the manner advised in a surveyor's report, or for the reports to contain the information prescribed, such as whether or not the charity should carry out any repairs or alterations to the property prior to a disposition, or if the property should be divided up for sale.
Charity to charity disposals
At present, charity to charity transactions for less than best price are generally excluded from the requirements of the Act.
The Act recognises that in certain cases this approach is not appropriate, particularly where a charity is making social investments using property where the financial return generated by a transaction may still be a motivating factor, in addition to a charitable return.
This exception will no longer apply to a commercial transaction which is intended to achieve the best price that can reasonably be obtained for the disposing charity, or a social investment.
Tenancies granted to employees
The Act will also amend the definition of “connected person” to exclude employees of a charity, such as wardens, where the disposal is the grant of a short, fixed term or periodic tenancy (of one year or less) to use as their home. This useful change means that while trustees will still need to obtain advice on granting these tenancies, the consent of the Charity Commission will no longer be required. However, the consent requirement will remain for other categories of “connected person” such as subsidiaries of charities.
Implementation in stages
Although the Charities Act 2022 has already received Royal Assent, most of its provisions will come into force in stages over the next 12 to 24 months and will be accompanied by update guidance notes from the Charity Commission. It is anticipated that the provisions of the Act on the disposals of property assets will be implemented in the autumn of 2023.
Early advice needed
These changes, once affected, should streamline the disposals process by relaxing the regulatory environment, but charities will still need to seek early advice to comply with the new requirements. This should allow charities to conduct their business in an effective and impactful way.
There is, however, a risk that by putting more onus on trustees of charities to take greater responsibility for disposal related matters, this may present challenges for less experienced trustees, accepting more liability for day-to-day decisions called for in the management of their charity.
In a worst case scenario, trustees could find themselves in the uncomfortable position of having entered into a contract for sale, belatedly realising they had not fully complied with their duties and yet being obliged to go through with a disposal even if they had not taken proper advice and achieved best terms. In these circumstances, trustees may be exposed to a claim for breach of trust and/or regulatory action.
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