What exactly are Charities Act “designated adviser’s reports” and why are they needed?

Updated following implementation of Sections 17 and 19-22 of the Charities Act 2022 on 14 June 2023.

On a sale (or other relevant disposal) of charity land charity trustees will usually be advised that they must obtain a written report from an independent property adviser (a “Designated Adviser’s Report” (DAR)).

This requirement (formerly to obtain a qualified surveyor’s report, or QSR) may cause confusion. Trustees are often 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 designated adviser’s report needed on a sale of charity land?

1. It is a requirement of the law.

Section 117 of the Charities Act 2011 (as amended by section 20 of the Charities Act 2022) requires that before committing to a sale (or other relevant disposal) charity trustees must have obtained and considered a written report from a designated adviser acting exclusively for the charity and have decided, having considered that report, that the terms of the sale (or disposal) 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 designated adviser’s report?

1. It is not a valuation report.

A DAR differs from an ordinary valuation report because the designated adviser is required to give guidance on many different issues, not just price.

2. It has to cover the 5 advice points set out in the 2023 Regulations.

The regulations set out, in detail, exactly what issues the designated adviser should cover in the DAR.

• The value of the relevant land;
• Any steps which could be taken to enhance that value;
• Whether and, if so how, the relevant land should be marketed;
• Anything else which could be done to ensure that the terms on which the disposition is made are the best that can reasonably be obtained for the charity; and
• Any other matters which the designated adviser believes should be drawn to the attention of the charity trustees.

The report must also include a confirmation by the designated adviser that:

• the adviser has ability in, and experience of, the valuation of land of the particular kind, and in the particular area, in question; and
• the adviser has no interest which conflicts with that of the charity.

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 DAR 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 DAR 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 designated adviser 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.

2. At appropriate stages.

Some complex transactions may require more than one DAR, at intervals during the process or as terms change.

Who can write one?

1. The trustees can instruct the following property professionals to act as designated adviser, as most appropriate to the land and/or transaction in question:

• A fellow or professional associate of the Royal Institution of Chartered Surveyors;
• A fellow of the Central Association of Agricultural Valuers; or
• A member of NAEA (National Association of Estate Agents) Propertymark at fellow grade.

2. An adviser who has ability in, and experience of, the valuation of that kind of property, and in that area.

3. An adviser instructed by the charity trustees and acting exclusively for the charity.

Trustees often ask if they can instruct the selling agent to also write the Charities Act report. It may be possible for a colleague in the same firm as the selling agent to prepare the DAR but consider whether the selling agent is independent and objective. If it is not possible for a designated adviser to act independently and objectively then an adviser completely unconnected with the relevant transaction should be instructed. 

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 DAR could be severe.   With the wider pool of potential designated advisers from June 2023 this should enable charity trustees greater flexibility to obtain the right advice as cost-effectively as possible.

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 DAR 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. 

Can a DAR be written by an employee or trustee of the charity?

Yes, section 21 of the Charities Act 2022 has introduced an explicit clause stating that a DAR may be given by a charity trustee or an officer or employee of the charity.  They must have the same qualifications as an independent adviser.

But, in practice it may often be more appropriate for an independent adviser to be instructed, even where a charity has people with the right skills in the organisation.  It will often depend on the nature of the property/transaction.  If it is a complex development sale, for example, the trustees (and indeed the potential designated adviser!) may feel it is better to seek an independent view on proposals.  The trustees should consider whether professional indemnity insurance cover is available and remember that any payments to trustees must be authorised by the charity’s governing document.