Charity Trustees censured for selling property for £15m less than it was worth
21 April 2017
Charity Trustees censured for selling The Spiritualist Association of Great Britain’s headquarters in Belgravia for £15m less than it was worth.
On reading a headline like this about the Charity Commission’s recent Inquiry Report into the sale of The Spiritualist Association of Great Britain’s headquarters in Belgravia you might think that the Trustees of this charity had committed an obvious gross error of judgment and such a scenario could not happen to sensible Trustees. The case however provides a timely reminder of how easy it is for charity Trustees to slip up when they fail to take appropriate professional advice on the management of a charity’s assets. A closer look at the circumstances of this case shows this error of judgment was not necessarily quite as obvious as the headline suggests.
In 2010 the charity sold the property to a commercial company for £6m. The purchaser sold the property on shortly afterwards for £21m.
The Charity Commission began investigating in 2013, after negative press reports about the disposal which emerged a few years later.
The charity owned a leasehold interest in the property which was due to expire in 2047. There was some financial imperative to dispose of the property because the landlord wanted to hold the charity to a full repairing obligation in the lease which the charity could not afford to meet. The lease was also subject to an unusually restrictive covenant limiting the use of the property to “the headquarters of a non-profit learned or charitable or cultural association or society, or as an embassy.”
The Trustees had been told that it would be difficult to sell the property on the open market with this restriction in place and when ‘the gift horse’ came along, they seem to have genuinely concluded this sale was their best option. Whilst the Trustees did have a ‘property adviser’, this person did not meet the statutory qualification criteria nor was an independent surveyor’s report complying with the Charities (Qualified Surveyors’ Reports) Regulations 1992 (SI 1992/2980) commissioned prior to the Trustees entering into a lock-in agreement with the purchaser. In fact, when the first solicitor appointed by the Trustees raised concerns about this, the charity Trustees dispensed with his services and engaged a second firm of solicitors who were happy to complete the sale without looking into the first solicitor’s concerns.
Following its acquisition of the property the purchaser was able to negotiate a release of the restrictive user covenant and sold the property on shortly afterwards for the increased sum of £21m.
The Charity Commission’s report criticises the Trustees for failing to comply with the restrictions on disposals of charity land imposed by sections 117-122 of the Charities Act 2011. The Commission said these breaches “were not minor or technical in nature” but “amount to basic and serious mismanagement.” The Trustees had breached their fiduciary duty of care and duty to promote the success of the charity. A suitably skilled independent surveyor would look at how to extract maximum value from the disposal for the charity and this would have included advice on how the charity could benefit from a post-sale increase in the value if a change of use was secured. The Charity Commission also criticised the Trustees for not instructing specialist charity solicitors. The Commission stated that the charity Trustees should have realised that a commercial company would only purchase the property if there was some prospect of obtaining change of use and criticised the Trustees for not considering putting overage in place to secure a share of any future increase in value for the benefit of the charity. A lay person might not be aware of how the overage mechanism works, which is precisely why the Charities Act makes professional advice mandatory.
The Charity Commission said:
“The case highlights that disposing of charity land can involve complex arrangements which charities need to be careful about and obtain proper professional advice on.”
For further information see the Charity Commission’s full report of its statutory inquiry and guidance for Trustees on dealings with charity land.
The content of this article is for general information only. Our specialist Charities Team advises on all aspects of charity law and regulation. If you have any questions or concerns regarding your charity’s property please get in touch with Louisa Saunders. Law covered as at April 2017.
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 April 2017.