Charities Act 2022: disposal of charity land

This is the second in our series of articles designed to provide you with practical guidance on the key changes under the Charities Act 2022 and, crucially, how they will affect you in practice.

In this article, we focus on changes to the procedures for the disposal of charity land and mortgaging charity land.

For a general introduction to the Act, please see our article Charities Act 2022: a practical introduction for charity trustees.

Changes to the charity land disposal and mortgaging regime

The changes under the Act are designed to save a charity time and money (including on legal costs) and reduce the administrative burden for the Charity Commission. Some of the new changes affect the rules on disposition and mortgaging of charity land, which should make the process simpler and more cost effective for charities.

Charities will be given greater flexibility and choice to seek advice from a wider range of professional advisers and the Act also seeks to give greater certainty for purchasers buying or acquiring an interest in charity land, with a more straightforward process for certifying compliance with the Charities Act requirements.

Some of the principal changes affecting charity land are outlined below.

When do restrictions on disposition apply?

Under the current Charities Act 2011, no land held by or in trust for a charity can be disposed of without either an order of the court or the Charity Commission, unless certain exemptions apply or the procedure set out in Act is followed. In broad terms, the statutory procedure may be used so long as the disposal is not to a connected party, and the charity obtains appropriate advice on the terms of the proposed disposition.

The new legislation clarifies that for a disposition to be “caught” by the Act, the whole of the land intended to be disposed of must be held by the charity either for its own benefit or in trust solely for the charity. This means that, in certain circumstances, land which is held partly by or in trust for the charity and partly by or in trust for others (even where the others are also all charities) the disposition will not be subject to the requirements under the Act. For example:

• a charity owns part of a property under a tenancy in common with three other charities (i.e. where legal title is held on trust for the charities, and the trusts specify what share of the property each charity owns). If the charity wished to sell only its share of the property, this would be caught by the Act. However, if the whole of the property were to be sold by the land trustees, this would not be caught by the Act.
• an individual dies and leaves their residuary estate to three named charities. The estate includes a significant property, and for tax reasons the executors decide to “appropriate” the property to the charities (i.e. transfer beneficial ownership of the land to them) before selling the land (this results in the executors holding legal title to the land on trust for the three charities). This would not be caught by the Act. This contrasts with the position where there is only one charity beneficiary, in which case the sale would be caught by the Act.

This is welcome clarification, as situations involving multiple beneficiaries have caused significant uncertainty in practice. This clear change in the circumstances in which the Act applies should help to relieve the administrative and time-consuming burden of complying with the rules when disposing of land where a charity has only a partial, rather than the whole, interest in the land.

Connected persons

Currently, any disposition of charity land to a ‘connected person’ must be ratified by an order of the court or the Charity Commission. A connected person would include a charity trustee; a donor of land to the charity; an officer, agent or employee of the charity; or a spouse or relative of any of them; and also includes some business relationships with the charity.

Under the new rules, a short term tenancy granted to an employee (being a connected person) for use of a property as their residential home will not need the consent of the court or the Commission, provided that the tenancy is for a period of one year or less. The charity will, however, still need to follow the other rules under the Act before making this disposal. In practice, this means that short term tenancies may be granted using the same simplified process that is used for granting any other leases of less than seven years.

Professional advice

When disposing of charity land, a charity currently has to take advice from a RICS qualified surveyor on the proposed sale. This is known as a “qualifying surveyors report” and can be an expensive and time consuming process for charities.

The new rules will allow charities to take advice from a wider pool of advisors, including fellows of the National Association of Estate Agents and the Central Association of Agricultural Valuers. The new provisions will also allow a suitably qualified charity trustee, officer or employee to give the requisite advice without the need to instruct an external advisor, provided that that person has the requisite skill and experience.

In practice, this greater flexibility gives charities the opportunity to shop around for the advice they think most appropriate and proportionate for the intended transaction, and by doing so, also manage their financial outlay and time pressures more efficiently.

Statutory statements

The existing legislation requires a statutory certificate to be given by the charity trustees within the document effecting the disposition (e.g. the Transfer Deed) confirming that they have complied with the requirements of the Act before disposing of the property. Under the new rules, this obligation is imposed on the charity (rather than the charity trustees) and requires the inclusion of a statement of compliance in both the contract for sale and the document effecting the disposition.

In practice, these changes will mean that all documents relating to the disposal of an interest in charity land will contain the same statutory statements. This will avoid confusion both for charity trustees and conveyancers as to which provisions should be included within which documents.

The changes also provide additional comfort to third party purchasers acting in good faith. The Act states that where a statement of compliance is included in a contract for a disposition or mortgage it is conclusively presumed to be true in favour of the third party (and where it is omitted the contract remains enforceable by a third party who has entered into the contract in good faith). This is likely to reduce delays and costs in charity land transactions, as third party purchasers will gain statutory protection from the inclusion of the statements in the contract such that they should not require evidence that the charity has complied with the statutory procedure before entering into the contract. Where the statutory statements are given in the contract, it will be enforceable.

The disposition of charity land is a specialist area and we recommend that charities obtain appropriate legal advice at an early stage before entering into any agreement to dispose of charity land. For further information or advice, please contact Louisa Saunders, Hannah Harbottle or another member of the Birketts Charities Team.