This requirement can cause confusion. Trustees might be genuinely concerned about the cost of professional advice which they may feel is not necessary. Buyers, who may not be familiar with the legal requirements for charities, may misinterpret the trustees’ motives as being over-cautious, an attempt to delay matters or just to get more money out of the transaction.
This article aims to dispel some myths about the procedure and to clarify some key points.
Why is a Charities Act surveyor’s report needed on a sale of charity land?
1. It is a requirement of the law.
Section 117 of the Charities Act 2011 requires that before committing to a sale (or other relevant disposal) charity trustees must have obtained and considered a written report from a qualified surveyor acting exclusively for the charity and have decided, having considered that report, that the terms of the sale are the best that can reasonably be obtained for the charity.
2. If trustees do not comply with the law they may be personally liable.
If it is found that the sale was not the best course of action for the charity, and the trustees failed to comply with the requirements of the Charities Act, then they may be personally liable for any losses the charity suffers as a result. Whilst charity trustees are usually entitled to an indemnity from the charity’s assets for any liabilities they incur in the exercise of their duties, this depends on their having acted properly.
3. To protect the charity’s assets.
The provision is designed to ensure that the value of charity assets is maximised and trustees do not make unwise decisions.
What is a Charities Act surveyor’s report?
1. It is not a valuation report.
A QSR differs from an ordinary valuation report because the surveyor is required to give guidance on many different issues, not just price.
2. It has to cover the 9 advice points set out in the 1992 Regulations.
The regulations set out, in detail, exactly what issues the surveyor should cover in the QSR.
- A detailed description of what is to be sold
- Details of existing leases affecting the property
- Whether the property is subject to easements and covenants
- Condition of any buildings and need for repair
- Alterations to buildings: for example, could the property be enhanced by alterations?
- Method of sale, including how to advertise
- Valuation: for example, advice on the current value of the property and the impact on value of any recommendations in the QSR, such as advertising or making alterations?
- Alternative Options: for example, should the trustees consider applying for planning permission for change of use or should overage/development clawback provisions be included?
When is it required?
1. When there is disposal of charity property.
The provision only applies to disposals and not acquisitions of property (although the Charity Commission strongly advises trustees take professional advice on any property acquisition).
Most disposals of charity property (save for leases of 7 years or less) will require a QSR and the Charities Act does not draw a distinction between different types of property or values, therefore a complicated sale of development land can trigger the requirement for a QSR but so could the grant of a simple electricity easement.
2. As early as possible.
The report must be obtained before the charity is contractually obliged to enter into the sale but the surveyor should really be consulted at the very outset of the process in order for the trustees to get the best benefit from his or her advice.
3. At appropriate stages.
Some complex transactions may require more than one QSR, at intervals during the process or as terms change.
Who can write one?
1. A fellow or professional associate of the Royal Institution of Chartered Surveyors.
The trustees should ask the surveyor if they have this qualification; the surveyor will usually have the letters ‘FRICS’ or ‘MRICS’ after their name.
2. A surveyor who has ability in, and experience of, the valuation of that kind of property, and in that area.
3. A surveyor instructed by the charity trustees and acting exclusively for the charity.
Trustees often ask if they can instruct the selling agent to carry out the Charities Act report. It may be possible for a surveyor in the same firm as the selling agent to prepare the Charities Act report but consider whether the selling agent is independent and objective. If it is not possible for a surveyor to act independently and objectively a surveyor completely unconnected with the relevant transaction should be instructed. It is the trustees’ responsibility to appoint the right surveyor.
How much do they cost?
1. It varies.
It very much depends on the nature of the property involved but these reports start at something like £500 for a very straightforward transaction. A more complicated report may cost considerably more. As the aim of these provisions is to ensure that trustees take advice, it is extremely unlikely they would be criticised for paying for it. On the other hand, the consequences of failing to commission a report could be severe.
2. The Charity Commission may issue a waiver where the cost is disproportionate.
It is possible to apply for a waiver of the requirement for a QSR where the cost of obtaining one would genuinely be disproportionate to the benefit. However, the Charity Commission will only do this when there is a very good reason and it may take significant time for a waiver to be issued.
Does the buyer have to check that the charity trustees have got a report?
1. As long as the buyer is paying ‘money or money’s worth’ - no.
If the transfer deed contains a certificate in the prescribed form that the trustees have complied with the Act then the buyer benefits from a statutory presumption that the facts stated in the certificate are true. Even if a certificate is not included, a buyer who is paying ‘money or money’s worth’ and who is also acting ‘in good faith’ will still be protected.
2. But, buyers should proceed with caution.
If the buyer is not paying ‘money or money’s worth’, knows, or ought to have known, that the trustees have not complied with the requirements, or if a certificate is not included in the documents then ultimately the sale could be vulnerable to being set aside by the Charity Commission if subsequently found to have been a bad deal for the charity. The issues can be complex and therefore it is very important that buyers take specialist advice before proceeding.
How will the provisions of the Charities Bill published in May 2021 affect the procedure?
Expected to become law in 2022, the Bill seeks to “produce a clearer and less administratively burdensome legal framework for buying, selling, leasing and mortgaging charity land”, for example by:
- expanding the category of advisers who can provide a Charities Act report to include fellows of the National Association of Estate Agents and Central Association of Agricultural Valuers, as well as appropriately qualified charity trustees, officers and employees
- simplifying the range of the advice points the adviser is required to cover in the report;
- relaxing the requirement to advertise the property so that trustees have to consider the advice on advertising but do not have to follow it.
Some charities will welcome the greater flexibility these provisions provide, particularly in relation to routine or small transactions which do not seem to justify the cost of a QSR. On the other hand however, there is a risk that the new provisions may introduce further uncertainty and even allow for charity property to be sold on less favourable terms than may have been secured had a full QSR been required.
For further information or advice please contact Louisa Saunders via [email protected] or 01473 406331.
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at September 2021.