Key considerations for new charities needing premises
23 October 2023
When embarking on a philanthropic venture to build a successful charity, ensuring your charity has suitable premises to operate from is crucial. The news about the recent closing of an animal welfare charity in Norfolk is a poignant reminder of the importance of securing premises at the early stages of a charity’s lifecycle. Runham Wildlife Rescue announced that it unfortunately cannot continue its work rehabilitating animals due to its inability to secure suitable premises. According to trustee Lyndsey Murfet, “finding someone to rent land off for a small holding to help sick and injured animals is becoming completely impossible”.
In this article we look at how to ensure you have a robust property strategy for your charity.
Ensure your business plan includes your premises requirements
At the outset of your planning, you should consider what your premises requirements are, not just the type of premises you need but how long you need them for and how you will pay for any required maintenance over that period.
The Charity Commission will, when considering an application for registration of a new charity, frequently ask for evidence that there is a sustainable business plan, including appropriate premises.
If your charity proposes to buy or rent land or premises there are a number of important considerations that charity trustees should be aware of. It is important to bring in professional advisers at an early stage to make the process as seamless as possible.
Securing premises for your charity
In terms of finding suitable premises, you should consider employing the services of a professional property adviser, who will have a network of contacts and may be able to source properties which are not even on the market yet. In addition, an adviser will be able to assist you in negotiating the most favourable deal. Charity trustees have a duty to ensure that the terms of any deal, such as the rent, are fair in the market and that the charity can afford the financial commitment involved. It is recommended that trustees obtain a designated adviser’s report on any acquisition of property.
If there are any business or personal connections between the charity and the landlord or seller you should make your legal advisers aware straight away. The acquisition of a property from a connected party will need further consideration, and potentially Charity Commission consent due to the potential for conflicts of interests.
When buying premises there will inevitably be a larger initial financial outlay than leasing a premises, but it may offer a greater measure of security and more control over what you can do with the premises.
A charity might need to consider obtaining mortgage finance for a freehold purchase. When doing so, trustees must ensure the rates are reasonable, the charity can afford it and any rate rises have been fully budgeted for. When entering into a mortgage of charity premises the charity trustees are required to certify that they have sought appropriate professional advice on the terms of the loan before committing to the mortgage, in accordance with the requirements of the Charities Act 2011
As with any financial investment, you should preserve the value of the asset by ensuring you have the budget to keep up any necessary maintenance. Consider whether you might need to relocate in the future and, if necessary, think about how to make sure the premises are capable of sale when needed and ensure all your paperwork, such as electrical/gas certificates and any warranties/guarantees, is accessible and up to date.
Similar considerations apply when charities take a lease but there are additional points to think about when leasing. You should ensure that you understand all the terms of your lease, but in particular:
- Term – is the length of the lease appropriate for the charity’s needs; are there any breaks (for you, or for the landlord)?
- Rights to renew and security of tenure under the 1954 Act – the Landlord and Tenant Act 1954 gives business tenants the right to renew their lease at the end of the term and the landlord can only take back occupation if certain “grounds” apply. It is common for landlords to ask for this right to be excluded so they have more control. Think carefully before agreeing to exclude this right.
- Liability for repairs – are you responsible for repairs to the premises; do you understand the extent of your liability and have you budgeted for these adequately? If the premises are in less than good condition at the start of the lease you should consider incorporating a schedule of condition highlighting any defects so that you are not under an obligation to put these right.
- Do you need to make improvements? – If so, you need to think about whether the financial investment will be recouped over the term of the lease and ensure that any risk of the lease being terminated is managed so that you do not end up effectively improving the landlord’s premises with your charitable funds.
For charities who are occupying premises on the basis of a lease, it is also essential to plan ahead for lease “events”, such as break clauses, rent reviews and potential dilapidations (bill for repairs) at the end of the lease.
There is excellent, free advice on negotiating lease terms available online in the Code for Leasing Business Premises.
How does your charity hold land?
Once the ideal premises have been secured, charities need to consider who will hold the legal title to the premises, whether it is a leasehold or freehold interest. This is not always a straightforward matter. Unincorporated charities (such as charitable trusts or associations) do not exist as legal entities in their own right and so cannot hold interests in land. An unincorporated charity’s land interests must be held by individuals or by a corporate body. It will be important to check the charity’s governing document to establish whether it sets out how any premises of the charity should be held.
Subject to anything to the contrary in the governing document, the title or lease is usually acquired in the names of all current charity trustees but sometimes the interest will be acquired in the name of two or more individuals. It is unfortunately common, as time passes, for unincorporated charities to find that land interests may be held in the names of people who are no longer involved with the charity and it can be complicated to unravel these arrangements, sometimes even requiring the Chairty Commission’s assistance to move title across to current trustees. Unincorporated charities should therefore consider vesting title to the premises in the Official Custodian for Charities. The Official Custodian holds title for unincorporated charities instead of individuals, but day to day management remains with the charity trustees who will retain the ability to take all necessary actions in relation to the premises, including signing the legal documents for a sale of the land Taking professional advice is recommended to avoid administrative burdens further down the line.
Business rates relief
Charities can qualify for business rates relief, provided premises are being used for qualifying charitable purposes. It should not be assumed that the same relief will apply where premises are occupied by a trading subsidiary of a charity so take advice on how to structure your property holding in the most tax efficient way.
If you are a non-charity landlord, you might therefore wish to consider taking professional advice on whether allowing a charity with a temporary property requirement to use vacant premises might help you mitigate business rates liabilities whilst doing some good.
Get in touch
If you are a charity seeking premises or planning for the future, and you would like to talk to us about your property strategy, please get in touch.
Further information on the charity law issues involved when charities are acquiring land and premises is available in the Charity Commission’s guidance for charity trustees HERE.
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 October 2023.