The second tranche of changes to charity law brought about by the Charities Act 2022 are due to come into effect imminently – the Government has announced that the next changes will be implemented in “June 2023” (though no specific date has been released).
As part of the updates, some important changes to the way in which charity trustees deal with charity land and property are being brought about. In this article we explore what the major changes will be and what they will mean in practice for charity trustees.
What’s happened so far?
The Charities Act 2022 (the Act) is a piece of amending legislation which amends and updates certain provisions of the Charities Act 2011. It received Royal Assent in February 2022, however its provisions have been coming into force in stages.
Why was it needed?
The Act seeks to reform certain aspects of charity law in order to simplify the administrative burden trustees and senior management often face. For a detailed introduction to the Act, please see our article here, or access our quick and free webinar here.
What are the changes coming into effect in June 2023?
A number of changes are expected to come into effect in June 2023 in addition to the changes to the rules governing charity property disposals. For example, changes to the rules surrounding permanent endowment, the connected persons regime and the use of charity names will also be implemented. In a previous article, we explored those changes in more detail.
What do the changes mean for disposing of charity land?
Disposing of Charity Land
Whenever a charity wishes to dispose of land (for example, if it wishes to assign a lease, mortgage land, or sell a building it owns), it must do so in accordance with the framework of restrictions set out in the Charities Act 2011. This is to ensure that trustees make prudent decisions and deal with their charity’s land on the best terms possible.
The Act seeks to streamline the process by which charities dispose of their land in a number of ways:
The scope of section 117 of the Charities Act 2011
The Act clarifies the type of land which comes under the purview of section 117: land which is held by a charity solely for its own benefit (such as land held by charitable companies or charitable incorporated organisations) or land held in trust solely for that charity (such as by a charitable trust). So, for example, where a charity is one of several joint tenants of a piece of land (even where they are all charities), and the trustees of the land wish to dispose of the whole parcel, then the land in question will not come under the remit of the Charities Act 2011. On the other hand, if a charity individually wishes to dispose of all of its part-share in a property, that disposal will be caught.
Changes to qualified surveyors’ reports
If a charity wishes to dispose of charity land and its disposition falls within section 117 of the Charities Act 2011, it will currently need to obtain a qualified surveyor’s report as part of the process. Various updates are being made to this process to make it more user friendly. Qualified surveyors’ reports are to become designated advisers’ reports, and, amongst other changes, the requirement for charity trustees to advertise a proposed disposition in the manner advised in the surveyor’s report is also being amended.
The category of those who can write a designated adviser’s report for charity trustees on disposals – currently RICS surveyors only – will be expanded to include fellows of both the National Association of Estate Agents and the Central Association of Agricultural Valuers. This is to reflect the many different types of property held by charities and to ensure that trustees can select the appropriate level of professional for the property in question. For example, where trustees are selling a residential property on the open market that may need a very different approach than a piece of land with development potential. The Act will also helpfully clarify that appropriately qualified charity trustees, officers and employees may provide a report or advice under the Charities Act 2011 (including where they do so as employees for their charities).
Connected Person Definition Amended for Leases to Employees
Section 118 of the Charities Act 2011 will be amended so that charities will be able to grant a fixed-term, of one year or less, tenancy (or periodic tenancy) to an employee of that charity, for use as the employee’s home. This will mean that trustees will not need the consent of the Charity Commission to such leases (however trustees must still obtain suitable advice on the grant of the lease to ensure that the terms are the best reasonably obtainable for the charity). Previously, such a tenancy would automatically require an order from the Charity Commission to be obtained due to connected parties issues.
Changes Postponed Until Late 2023
The Government has announced its intention to postpone the implementation of a number of provisions relating to the regime surrounding charity land disposals. Notably, this includes the proposed changes to the following areas:
- Sales contracts: a new requirement will be included where both contracts and transfers for a disposition of charity land are to include the same confirmatory statements that either the disposition has been sanctioned by the Charity Commission or court, or that the charity has power to effect the disposition and that sections 117 to 121 of the Charities Act 2011 have been complied with.
By adding this step of an additional statement, the requirements in order to comply with the provisions of the Charities Act 2011 will be the same at both key stages of a transaction (namely exchange and completion). It will also be the case that the giving of the statements will be part of the same process as the signing of the contract and transfer documents, as opposed to the current regime which requires these to be given, as an additional step, by individual charity trustees, which should simplify the signing process for disposals of land and property. - 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 in the Act (as those individuals are already subject to professional obligations and duties to seek the best terms for a disposal).
- Section 117(3)(c) will be amended to confirm that disposals to another charity are not caught by the usual restrictions on disposals of charity land, except where they are (a) made with a view to achieving the best price for the property; or (b) where the disposal is a “social investment” (a form of investment which both delivers on the charity’s purposes and also provides a financial return). In other words, if the disposal is to another charity and is purely intended to further the transferring charity’s purposes then the exemption should still apply, but where the proposed disposal is financially motivated (even if the recipient is a charity) the restrictions on disposal of charity land under the Charities Act 2011 will need to be carefully considered and followed.
The above areas are expected to come into force at the tail end of 2023.
Conclusion
The changes set out in this article form part of a wider second tranche of changes which are being implemented this June. The final sections of the Act are expected to come into force later on this year and will cover areas such as powers relating to the appointment of trustees, the remuneration of trustees, as well as the rules surrounding charity mergers. Keep an eye on our website for further details.
It is important for trustees to stay up to date with the changes as they are implemented, particularly if charity trustees are considering disposing of an interest in charity land. Remember that “disposals” of charity land are wide in scope – the term “disposal” includes the grant of a lease (but the requirement for professional advice is lighter touch in the case of a lease of less than 7 years), the surrender of a lease, the granting of an easement and the selling of land, among others. We would recommend that trustees ensure that they are aware of the changes coming into effect and consider how those changes may have a bearing on their decision-making processes.
The Birketts view
The June implementation of the Charities Act 2022 is expected any day now. It is therefore extremely important that any trustees wishing to dispose of charity land are aware of the changes and deal with their charity’s property appropriately.
Trustees will be comforted to hear that the changes do not represent an upheaval to the rules and regulations surrounding disposals of charity property, and the changes will be readily navigable for those needing to use the new rules early on. If you are in any doubt as to what the changes might mean for you and your charity, or if you would like advice on disposing of your charity’s land, please do get in touch with Louisa Saunders (Legal Director, Charities Team), or Amy Bradburne (Solicitor, Charities Team) for more information.
Key Contacts
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 June 2023.