Aaron Spencer, Partner specialising in Property and Estates, deals with some common questions facing charitable trustees when dealing with property issues.
Can our charity own property?
Yes - your charity can own property. If your charity is registered as a charitable company the charity will be the legal owner of the property and this will be registered at HM Land Registry. Ownership of the property is subject to the terms of the charity’s constitution.
If your charity is not incorporated then the property will be owned by the individual trustees with a maximum of four named individuals able to appear on the Land Registry title. These four people will own the property on trust for the other trustees and ultimately on behalf of the charity.
It is crucial that the trustees named on the Land Registry title appreciate that they cannot benefit personally from their ownership as one might with ownership of a private property. The property belongs to the charity and the named owners must defer to the charity constitution and the entire trustee body if decisions are to be taken that relate to the property.
Another option (if the governing document allows) is for the property to be held by a custodian trustee on behalf of the trustees, which would avoid the need to change the names on the Land Registry title every time there is a retirement of a trustee.
Our charity is considering buying a property – what should we be thinking about?
The first thing to consider is whether the trustees are acting in accordance with the terms of the governing document of the charity. The governing document will need to contain a power to acquire and own property otherwise the trustees will need to apply to the Charity Commission for permission to amend the governing document.
Trustees have duties to the charity and must be seen to act prudently. Accordingly, the trustees will need to carefully consider legal advice as to whether the property has any restrictions which might impinge upon the charity's intended use for the property. A surveyor may also need to be consulted to ensure the trustees are paying a fair and reasonable price.
What advice do we need on disposal of a property?
The trustees need to be very mindful of the obligations upon them when:
- selling property or agreeing a new lease to a third party;
- surrendering a lease; and
- granting rights to a third party over land owned by the charity.
Professional advice should be taken to ensure that the strict statutory procedures governing disposal of property are followed. Failure to do so may result in the trustees facing personal liability.
What are the implications of section 36 of the Charities Act 1993?
These are important statutory provisions that trustees must be mindful of when disposing of property. The provisions impose a duty on the trustees to take professional advice to ensure the charity is getting a fair deal. If trustees fail to follow these statutory procedures they expose themselves to questions that they have acted in breach of trust or failed to act in the best interests of the charity. Ultimately the sale could be set aside.
As such, trustees must consider the need to either obtain an Order from the Charity Commission approving the disposal or obtain a report from an appropriately qualified surveyor confirming the price agreed is reasonable.
Does section 36 apply to a disposal to another charity?
Transfers between two charities (for less than market value) are exempt from the section 36 procedures provided the charities share similar objectives. This exemption is useful when a charity changes its structure from an unincorporated charity to a charitable company and property needs to be transferred from the old to the new structure.
Another exemption from the section 36 provisions enables charities to grant a lease to beneficiaries at less than market value provided those beneficiaries fall within the objectives of the charity. An example of this might be an Almshouse Charity that rents property to its beneficiaries at a reduced price.
What if one of the trustees wants to buy the property?
Trustees must take advice and exercise caution whenever dealing with someone who is ‘connected’ to the charity. A connected person might be:
- a trustee;
- officers, agents or employees of the charity; or
- immediate family members of any of the above.
In such cases, the trustees will need Charity Commission approval and must also take advice from a qualified surveyor. The Charity Commission must be satisfied that the sale is at the best price that could have been obtained had the property been placed on the open market. It is also important to ensure that the connected party is not present at any trustee meetings when the decision to sell to that person, or a member of their family, is being discussed.
What should the trustees do with the proceeds of a sale?
A The trustees must use the proceeds of sale to further the objectives of the charity. They are not obliged to purchase another property but if the proceeds are not to be spent, the trustees must ensure the monies are invested appropriately and with prudence.
For further information contact Aaron Spencer on 01227 763939