OG548 Disposal of charity land

Last reviewed:
15 October 2013
Last updated:
15 August 2014

Policy Statement/Overview

In most cases trustees do not need to come to us for consent to dispose of their charity’s land. Where they are able to comply with the requirements of either s119 or 120, we expect trustees to do so (we refer to this as ‘self-certificating’ in this guidance). We will not give consent by making an Order or Scheme where trustees simply do not want to comply with the requirements. Trustees should read the guidance on our website including Sales, leases, transfers or mortgages: What trustees need to know about disposing of charity land (CC28).

Most commonly consent is needed for disposals to connected parties and where there is no power to sell designated land without replacement. In cases where we do need to become involved we need to be sure the trustees have:

  • the power to make the disposal (otherwise we will have to provide it by Order or Scheme)
  • managed any conflict of interest issues
  • understood the value of the asset(s) of which they are disposing and followed professional advice
  • ensured the disposal is in the best interest of the charity

Summary of the guidance

This guidance covers the situations where we need to be involved in disposal of charity land cases and explains:

  • when we do and when we do not need to become involved in disposal cases
  • what information we will need to see and what we will take into consideration when deciding whether or not to give consent for a disposal
  • some of the less common circumstances where we may also need to be involved

The guidance does not give details about the requirements with which trustees must comply when they can dispose of their charity’s land without our consent – this information is set out in Sales, leases, transfers or mortgages: What trustees need to know about disposing of charity land (CC28).

If the property to be sold was granted under any of the Acts that mean that Reverter might apply (this would usually be one of the School Sites Acts of the 1840s and 50s), caseworkers should first refer to OG27 -­ Reverter of Sites Act 1987 for the additional issues that this brings.

OG Contents (Site map)

Casework Guidance

B1 Top Ten things to know about disposals of charity land

  • The ‘default’ situation set out in s117(1) of the Charities Act is that all disposals of charity land need an Order from us or the court – see section E2.1…however
  • …in many cases trustees can ‘self-certificate’ and proceed without our consent if they comply with certain requirements – see section B2 and also guidance pages on our website
  • In some circumstances disposals are exempt also from these requirements – see section B2
  • Most charities will be able to use the Trusts of Land and Appointment of Trustees Act 1996 to give them the power to dispose of their charity’s land – but they still need either to ‘self-certificate’ or have our authority
  • When trustees use the ‘self-certification’ regime they must comply with the requirements before they enter the contract for disposal – see sections C2 and D2 of Sales, leases, transfers or mortgages: What trustees need to know about disposing of charity land (CC28)
  • Certain statements and certificates must be included in disposal documents – see section E2.2 and section F of Sales, leases, transfers or mortgages: What trustees need to know about disposing of charity land (CC28)
  • Trustees will always need our consent when disposing of their charity’s land to a connected person (unless the charity is an exempt charity) – see section B4
  • A Scheme will normally be needed to provide authority for disposals of designated land where trustees do not intend to replace it – see section B5
  • There are further advertising requirements when trustees are disposing of designated land – but there are some exceptions to when these are enforced – see section E4
  • In some circumstances trustees can dispose of their charity’s land for less than full market value without our consent and without complying with the requirements in s119/120 – see section E2.4.

Top of page 

B2 When can trustees dispose of their charity land without our consent?

If the disposal is for full value:

  • not to a connected person or
  • not to a trustee for, or nominee of, a connected person
  • is designated land the trustees will replace with similar, equally suitable land

trustees can dispose of charity land without our consent as long as they have a power of sale and comply with the requirements set out in s119 or s120 of the Charities Act.

 

In some cases trustees are not bound by the restrictions or with the requirements set out in s117 or ss119/120, for example where:

  • authority is given under a Scheme or an Act of Parliament
  • the disposal is for less than best price ‘charity to charity’ or to a beneficiary
  • the disposal is by an exempt charity
  • the disposal is a mortgage or an advowson (see section E1.5)

More information about these situations is set out under the Legal/Policy/Accountancy Framework tab at section E2.1

 

Also for further details about complying with s119/120 of the Charities Act, see Sales, leases, transfers or mortgages: What trustees need to know about disposing of charity land (CC28).

Top of page 

B3 When do we need to be involved with disposal of land?

We need to be involved with a disposal of charity land when:

  • the disposal is to a connected person – see section B4
  • the disposal is of designated land and the trustees do not intend to replace it (unless the charity does have a power of sale it can use and therefore does not need any further consent from us – although this is not often likely to be the case) – see section B5
  • trustees, for some reason, can’t or claim they can’t comply with the requirements of s119 or s120 – see section B6
  • trustees have disposed of land in circumstances when they wouldn’t usually need to come to us but they have not complied with the requirements of s119 or s120 before entering into the contract for the disposal – see section B7
  • it is a disposal for less than best terms but it is not to another charity with similar purposes or to a beneficiary or beneficiaries – see section B8
  • in the unlikely event that the charity does not have the power to dispose of the land or the trustees are prohibited from disposing of the land by a provision in the governing document – see section B9
  • the trustees wish to dispose of land we have vested in the Official Custodian (OC) under s76(3)(c) as part of or following an inquiry – see section B10
  • we are asked to give an exemption from the requirement to give notice of the disposal of designated land under s121(6) following an application in writing from the trustees – the trustees would have to make a very good case for us to give a waiver for this – see section B5.2
  • in certain circumstances in the disposal of a rentcharge – this is an uncommon situation but for more detail see section B11

 

We will not make an Order when trustees just don’t want to comply with the requirements in sections 119 or 120 of the Charities Act.

 

The following sections set out when and how we need to be involved in disposals of land.

Top of page 

B4 Disposal to a connected person  

B4.1 Who is a connected person?

  • Someone who is closely connected with the charity
    • a trustee, agent or employee or their close relatives or spouse/civil partner
    • a donor of land to the charity
    • people in business with any of the above
    • an institution or body corporate controlled by any of the above or in which any of the above have a substantial interest
  • For a full list see section K1 of CC28 or s118 of the Charities Act. Also see section E1.3 and section D under the Case Studies tab that contain information about:
    • recently retired trustees
    • the widow or widower of a trustee
    • a subsidiary trading company
    • a director of a company and necessary approval by members of the company

 

B4.2 Do the trustees need an Order in these cases?

Yes, in almost all cases – the exceptions to this are if:

  • the disposing charity is an exempt charity
  • the disposal is sanctioned by an Act of Parliament or Scheme
  • the disposal is excepted under s117(3) or (4) of the Charities Act

- see section E2.1

Otherwise it is a legal requirement that any disposal to a connected person needs an Order from us.

 

These cases carry the potential for risk because the charity is disposing of valuable assets to someone who is connected to the charity, a situation that creates a conflict of interest as:

  • on one hand the charity has a duty to achieve the best terms reasonably obtainable for the transaction
  • on the other hand the connected person will want to obtain the property for terms that best suit him/her, which may be less than the charity is trying to realise from the disposal

The trustees must confirm (and be able to demonstrate if required) they have managed this conflict of interest properly and that the disposal is in the best interests of the charity.

 

In these circumstances an Order:

  • provides assurance that the transaction has been managed properly and is in the best interests of the charity
  • can help avoid the risk of challenge or criticism

 

B4.3 How do the trustees apply for our consent and what information do they need to provide?

Trustees use the online application form to give us the information we need to decide whether or not we can make the Order (see section B4.5) – but there is nothing to stop a caseworker asking for more information if needed.

 

The online form asks for:

  • the charity’s details and contact information
  • information about the connected person – who it is and how he/she is connected
  • a summary of the contents of the surveyor’s report
  • details of the land, including if it is designated land
  • the type and terms of the disposal – sale price or terms of the lease
  • how the trustees have resolved issues raised in any opposition to the disposal

It also asks the trustees to make several declarations to say they have carried out the process properly and that they have managed the conflict of interest.

 

B4.4 Initial assessment and allocation of work

  • First Contact’s work allocation team will make the initial assessment of applications received
  • Where it is straightforward, First Contact will deal with the application
  • Whilst the value of the transaction might be something we take into consideration, other risk factors that could mean the case is sent to Operations might include if:
    • there is evidence of undue personal benefit – for example the sale price is below the valuation
    • the trustees have not obtained a surveyor’s report or written advice
    • the trustees are not following advice in the surveyor’s report
    • there is a history of disputes or problems within the charity relating to property sale
    • the property is designated land and there is no power of sale

This is not an exhaustive list and each application should be dealt with on a case by case basis.

If the online application gives rise to serious concerns, the case may be referred to Investigations and Enforcement (IAE).

 

B4.5 Can we make the Order or not?

  • It is the responsibility of the trustees to supply us with correct information. So the caseworker will accept the declarations made by the trustees and will know whether or not:
    • the trustees have the power to make the disposal and there is nothing in the governing document that prohibits the disposal – see section B4.6
    • if the trustees have indicated it is a disposal of designated land, we would check the power of sale the trustees declare they have – see also section B5
    • the trustees have managed the conflict of interest – see section B4.7
    • the trustees have followed their surveyor’s advice either to advertise or not to advertise as the case may be, or, if the trustees have good reasons where they have not done so – see section B4.8
    • the charity owns the title to the land – see section B4.9
    • the trustees have achieved the best terms in the circumstances of the disposal – see section B4.10
    • the disposal is in the best interest of the charity – see section B4.11

 

  • If we are satisfied the trustees have addressed all these issues properly, then it is likely we will be able to make the Order
    • the Order will be made under s117(1) of the Charities Act
  • However, if we consider any one or more of these criteria are not met, we may need to contact the trustees for further information
  • If we are still not satisfied that the trustees have achieved suitable resolution of these matters, we may need to refuse to give our consent.

 

B4.6 Do the trustees have the power to make the disposal?

We will accept the trustees’ declaration on the application form that:

  • they have the power to dispose of the property (although we would probably check if the land is designated land, such as a village hall or a recreation ground)
  • there is no prohibition in the governing document that prevents them disposing of the property

If the case goes to IAE for further in depth investigation, staff may request to see the evidence and further information if they feel it necessary.

 

In most cases trustees will be able to rely on the power in the Trusts of Land and Appointment of Trustees Act 1996 (TLAT1996). There may also be some other statutory power – see section E3.2 under the Legal/Policy/Accountancy Framework tab and also section B2 of CC28.

 

  • If there is a clause in the governing document that prohibits the disposal of the charity’s land we have to decide whether or not the disposal is in the charity’s best interests and therefore whether or not to amend the express prohibition in the governing document by Scheme to allow the disposal. Examples of the sort of factors we will take into account include:
    • the return the trustees will get from the transaction
    • how they intend to use the money gained from the disposal
    • if the beneficiaries will be affected by the disposal
  • If there is no power of sale in the governing document, the trustees could rely on s280 to introduce a power of sale in respect of land which is held for the general purposes of an unincorporated charity. Land held for a specific purpose of the charity is held on distinct trusts. Therefore dealings with that land inconsistent with those trusts will require a change of the purpose for which the land is held. This is likely to require a cy pres scheme. If a suitable power of sale can be adopted under s280, the trustees can then carry out the disposal in accordance with section 119
  • The articles of association of a charitable company will usually include a power to sell land. If necessary, a charitable company can alter its articles to include such a power.

 

B4.7 Have the trustees followed the correct procedures and dealt with the conflict of interest?

Trustees make a declaration that they have managed the conflict of interest – there is information for trustees in the conflict of interest pages on our website. We will not automatically require sight of minutes of meetings where the issue was discussed/decided, but if there is doubt caseworkers may ask the trustees to send these.

 

If we ask for further details, we will need to see evidence that the trustees have ensured the connected person has not:

  • been present at any discussions concerned with the transaction
  • had access to ‘inside information’ about other parties interested in the disposal

 

In some cases it may be difficult to achieve exclusion of connected persons from discussions. For example, where the connected person is a subsidiary trading company and the trustees are also the directors of the company, it can be impossible for them not to discuss the disposal as they are the same people involved on both sides.

  • In such a case trustees should provide evidence that shows:
    • they have given sufficient external advertising to the disposal
    • they have considered other offers
    • the connected person’s offer is comparable with or exceeds the other offers – it should be at least equal to the valuation and preferably still the highest bid
    • the disposal is essential for the effective running of the charity

Having seen evidence of the above, we will need to be satisfied that the proposed disposal is expedient in the interests of the charity.

 

B4.8 Surveyor’s report and details of the land

We should be sure that the trustees:

  • know exactly what they are proposing to dispose of

and

  • understand the value of their charity’s land (their surveyor should report in accordance with The Charities (Qualified Surveyors’ Reports) Regulations 1992)

 

Surveyor’s report

In order for us to judge this:

  • we ask trustees to provide us with a summary of the surveyor’s report that shows:
    • the value of the land – guide sale price or terms of lease
    • the surveyor’s advice regarding advertising
      • the surveyor may have advised not to advertise, but if the land is designated land the trustees are not going to replace it, they will probably need to advertise the disposal under s121 – see section E4
  • we ask if the trustees have followed their surveyor’s advice – if they have not we ask for the reasons why not:
    • if there is no advertising, when the surveyor advises the disposal should be advertised, we will need to know why and how the trustees have managed to achieve suitable publicity
    • if the trustees have not followed advice about the value of the land or terms of the disposal, again we need to know why
  • we will not necessarily need to see the full report but we may request it if we think we need more information than the trustees have provided

 

If we think there is a possibility that the land has been undervalued or the surveyor’s report is not full enough, we are able to call on further guidance from the District Valuer –

  • lawyer_refercaseworkers should consult a lawyer before considering this course of action as this will be at our expense; we should start by requesting a copy of the trustees’ surveyor’s full report first

 

 

Details of the land

  • If the land is registered with the Land Registry we will need the registered number and the full postal address of the land as well as details of any lease to which the land is subject.
  • Where the land is not registered we will need the full postal address or a brief description of the land, details of the conveyance or lease under which the charity acquired the land and details of any lease to which the land is subject.
  • We will use this information when describing the land in the Order.

 

B4.9 Do the trustees own title to the land?

The trustees need to make a declaration on the form that they own the title to the land they propose to dispose of. It is not for us to prove title to the land. If there is any doubt over the title, the trustees should not proceed without taking their own legal advice.

 

B4.10 Are we satisfied with the type and terms of the disposal?

The trustees need to tell us what type of disposal they are proposing and the terms on which they are proposing to make it. Caseworkers should:

  • compare the surveyor’s valuation with the return from the disposal – if there is a significant difference between the two then we will need to understand why
  • ask for more information if necessary
  • be satisfied the disposal will achieve the best terms for the charity reasonably obtainable in the circumstances – see section B4.10

 

B4.11 Is the disposal in the best interests of the charity?

Trustees are duty bound to achieve the best terms they can reasonably obtain for the charity in the circumstances of the disposal and should provide us with sufficient reasons for deciding the disposal is in the best interests of the charity. We should consider all the information provided in the online form. The factors that we might consider here are whether or not the:

  • trustees have achieved at least the minimum valuation recommended by their surveyor
  • offer they propose to accept from the connected person is at least very close to or above any other offers
  • disposal will impact on the:
    • ability of the charity to continue to carry out its objects
    • beneficiaries of the charity
  • trustees have plans in place to use the proceeds of the disposal and these plans will at least maintain or are an improvement on the charity’s ability to further its objects and/or serve its beneficiaries

 

See also the case study at section D2 dealing with disposals by building preservation trusts.

Top of page 

B5 Disposal of designated land

Designated land is land that is settled on specific charitable trusts held by the charity and required to be used for a particular purpose or purposes of the charity. Some examples of land which may be designated land are recreation grounds or land on which there are churches, schools or almshouses – see section E1.1.

 

If the trustees are not intending to replace the land, they will probably need a Scheme to give the power to dispose and alter the purposes of the charity. This work will be dealt with in Operations.

 

B5.1 Do trustees always need to come to us when disposing of designated land?

It depends on:

  • whether or not the trustees are intending to replace the land with other land of equal amenity value

and even then

  • perhaps the proportion of the charity’s land being disposed of
  • whether or not the governing document contains a workable power of sale. (In some cases, for example many village halls, there is a provision in the dissolution clause for the sale of the designated land.)

 

  • If the trustees are disposing of designated land but are intending to replace it, it is considered that they have an implied power to dispose of the land. If the disposal is not to a connected person they don’t need to come to us – they can dispose of the land (usually a sale) by complying with s119 of the Charities Act
    • the replacement land or property does not have to be exactly the same as the property disposed of, nor necessarily of the same financial value – see section E8 of CC28 where this also explains how surplus funds will need to be dealt with
      • if the financial value of the replacement land is significantly lower than that of the land being disposed of we may question whether this is really in the best interests of the charity
    • it is not our policy generally that freehold designated land could be replaced with leasehold land – however, see section E3.1
  • If the trustees are not replacing the designated land, it is very likely they will need a Scheme as they will probably no longer be able to carry out the purposes for which the land is held – see section B5.2. However:
    • if, unusually, there is a specific power of amendment in the charity’s governing document that allows for the amendment of the purposes for which the land is held, the trustees could use this to amend the purposes of the charity without the need for a Scheme – in most cases this will not be possible and it will also not be possible to use the power in s275 to alter the purposes of the charity as this power is not available to charities that hold designated land (see section E2.1 in OG519)
    • if the disposal is only a small proportion of the charity’s land that will not affect the ability to carry out the purposes of the charity, the trustees may not need a Scheme and may still be able to dispose of the land using the statutory power of TLAT 1996 and by complying with the requirements of s119. The proceeds of sale are likely to be held on an implied trust to support the use of the remaining land for the purposes of the charity.
  • In addition, if the trustees are not replacing the designated land, they will need to give notice of the disposal under s121 of the Charities Act (this is a different requirement from advertising to get the best price) – however, the trustees may ask for a waiver of this requirement by making an application to us in writing (see section B5.2)

 

For more information on this see section E8 of Sales, leases, transfers or mortgages: What trustees need to know about disposing of charity land (CC28) and also section E3.1 under the Legal/Policy/Accountancy Framework tab.

 

B5.2 Not replacing designated land – our involvement

There are two ways we may need to be involved where trustees are not replacing the charity’s designated land - we may need to:

  • make a Scheme
  • give a waiver from the requirement to give notice of the disposal of designated land

Both these situations will be dealt with by Operations

 

Scheme to change the objects of the charity

  • If the trustees do not intend to replace the designated land then it is likely that the charity will no longer be able to carry out its purposes. In this case we will need to make a Scheme to change the charity's purposes. In such cases, there will have to be a cy-près occasion as set out in s62 of the Charities Act. This will almost inevitably be the case where most or all of the land is being disposed of and is likely to be the case even where a small but significant part of the charity’s designated land is being disposed of – the test will always be whether or not the charity will be able to continue to effectively carry out the purposes for which the land is held following the disposal.

 

  • However, where:
    • the trustees are disposing of only a small part of the designated land and there will be little or no effect on the charity’s ability to carry out the purposes for which the remainder of the land is held

and

    • there is no express prohibition in the trusts of the charity that prevents any type of disposal

the trustees can proceed, relying on the statutory power in TLAT 1996 without the need to apply to us for a Scheme to provide a power of sale and fresh trusts, as long as they comply with the requirements of s119 (or s120 for a short lease). The proceeds of sale are likely to be held on an implied trust to support the use of the remaining land for the purposes of the charity.

 

Waiver requirement to give notice of the disposal

The trustees or their representative may apply in writing for a waiver from the requirement to give public notice of a disposal of designated land that will not be replaced. (See section E4 for information about the requirement for such a notice)

 

Before we give such a waiver, from the case put forward by the trustees, we must be sure that it is in the best interests of the charity.

 

Some examples of when we might consider an application and it may be appropriate to grant a waiver are:

  • an urgent transaction that is not significant to the trusts of the charity, eg an easement or lease which does not materially affect the trusts in designated land and:
    • the urgency of the action means that the time for notice cannot be found
    • the costs of notice are too high in relation to the consideration to be received by the charity
  • where there has already been public discussion of the proposed disposal, eg coverage by the media during the planning process
  • where the trusts of the charity itself impose a more onerous duty on the trustees, eg in the case of a village hall where the trustees are required to call a public meeting that, in itself, will give publicity of the disposal and will give a chance for members of the public or others affected by the disposal to make representations
  • where the property is disused, perhaps because the buildings are derelict
  • a voluntary conveyance under threat of a compulsory purchase order
  • where the trustees justifiably consider there to be a real danger of the sale falling through, perhaps because the purchaser wishes to complete very quickly and may not be able to tolerate a month’s delay. In such cases we should try to establish the risks that might be involved – for example we might wish to:
    • check whether there appear to be good grounds for believing that a sale could be lost by a month’s delay
    • establish whether the sale might provoke objections – in which case we may be less likely to grant a waiver
    • find out the reasons why the trustees did not publicise the disposal earlier

Such cases are likely to be quite rare and we would only give the direction after we are fully satisfied that the disposal, without the publicity normally required under s121, is the best way to proceed in the light of our enquiries

  • where there is a likelihood of the sale falling through because a developer or special interest purchaser will withdraw if his or her offer is publicised through giving of the public notice. In this situation the trustees would need to put forward a very strong case that the purchaser has genuinely good reasons for not wanting publicity and that these reasons weigh more heavily than the need to protect the interests of the beneficiaries
  • in rare cases where a charity makes a large number of routine transactions we can make a general Order exempting them from the requirement of notice under s121 – this is something we have done for the National Trust and the Canal and River Trust

 

When we receive the application for waiver, we should be satisfied we have sufficient information to enable full consideration of the case. We should take into account the consequences for the beneficiaries (for example, does it interfere with the use or enjoyment of the property); it is up to the trustees to make a very good case and convince us that a direction should be given. A direction under this section should not be given lightly.

 

B5.3 How do we decide whether or not to make the Scheme?

Trustees should read the guidance pages on our website about disposing of designated land and also Sales, leases, transfers or mortgages: What trustees need to know about disposing of charity land (CC28). They ought to have considered carefully:

  • why they are selling the land
  • whether or not there are any other forms of funding to realise the cash they are seeking from the sale
  • consulting with their umbrella body if they have one, who may be able to offer advice or assistance in this area

In addition they need to consider the timing of the notice required under s121 of the Charities Act – see section E4. If the trustees find there is great opposition to the disposal following this notice, they may need to reconsider their proposals and this might result in them abandoning them in favour of an alternative. In such a case they may not even need us to make a Scheme.

 

If it is necessary to make a Scheme, Operations will also need to consider whether there is a cy-près occasion under s62.

  • For guidance on making a Scheme or occasions when this is not appropriate, see OG 500
  • For guidance on application of property cy-près, see OG2

 

B5.4 Controversial disposals of designated land

Where we are giving a power to sell designated land, and where the disposal is controversial, we might consider it is appropriate to add provisions to the Scheme to state that the trustees cannot rely on the power to sell the land until all avenues of appeal have been exhausted or timed out. This is intended to avoid a situation where trustees rely on the power to sell the land before an appeal is lodged at the Tribunal. If this appeal is then successful, the fact that the sale has already taken place could cause difficulties for the charity and the Commission.

To address this, our policy is:

in cases where we are giving a power to sell designated land, and:

  • we are aware that the case is controversial to the extent that we required public notice to be given, and
  • we received representations as a result of the public notice,

the person making the Scheme should consider adding provisions to say that the power to sell can only be exercised once:

  • all relevant appeal periods have lapsed without challenge, or
  • all legal proceedings following an appeal to the Tribunal have been finally disposed of.

Whether or not we decide to include this wording in the Scheme the caseworker must record that this has been considered and must set out the reasons for making the decision on the case file.

Top of page

B6 Trustees can’t comply with the requirements of ss117-121

Trustees must comply with the requirements of s117-121 appropriate to their disposal no matter how small the transaction (unless the disposal is exempt or excepted from these requirements – see section E2.1). Where this requires a surveyor’s report, this will always be needed.

 

The trustees might claim:

  • they can’t find a suitably qualified surveyor in the area for the type of property
  • the cost of a surveyor’s report is disproportionate to the value of the disposal
  • an undervalue disposal to, say, a local authority committing to use the property for purposes compatible with those of the charity doesn’t need a surveyor’s report
  • they don’t want to or need to get a surveyor’s report, maybe because the think they know the value of the land

 

In each of these cases it is unlikely we will make an Order for the disposal without a surveyor’s report.

 

B6.1 No suitably qualified surveyor available

The trustees might claim they cannot find a suitably qualified surveyor in the area or for the type of land. This is an uncommon situation. If trustees contact us about this, we should direct them to the Selling charity land or property page on our website where there is a link to the Royal Institution of Chartered Surveyors (RICS) website. Here there is a useful ‘Find a surveyor’ facility.

 

B6.2 Cost of survey disproportionate to the value of the disposal

Trustees may claim that where they are disposing of land for a wayleave or access to the land for servicing equipment, for example, the value would be so small it is not worth getting a surveyor’s report.

 

However, although the disposal may appear small or insignificant, it is the value to the acquiring party that may be an important element in determining the price. (For example, it could be a ‘ransom strip’ – a small piece of land which becomes very valuable because without it a developer is unable to develop his own adjoining property.)

If we are to make an Order in such cases, it is just as important that the trustees get a surveyor’s report to be sure of the value of the land.

 

If we can be reasonably certain that the value of the transaction is genuinely low and as a way of protecting the charitable funds, we may make the Order – examples might include:

  • where the trustees have granted similar wayleaves valued recently by their surveyor
  • the trustees are selling a small piece of land or small property, such as an old Scout hut for example, and they have received a valuation from a local estate agent that indicates the value is lower than the cost of a surveyor’s report

These are examples and caseworkers will need to consider on a case by case basis but where such a situation does not exist, we will insist on the trustees obtaining a surveyor’s report.

 

B6.3 Trustees think they don’t need or don’t want to get a report

We will not make an Order when trustees just don’t want to get a surveyor’s report – this would seem to run against the trustees’ duty to secure the property for the charity and act in the best interests of the charity. Trustees would have to make a very compelling case if they think they don’t need a surveyor’s report.

 

If the trustees already have a surveyor’s report from a previous attempt to sell the land, we might consider accepting the information in that if it is reasonably recent – in these circumstances we suggest the report should be no more than six months old.

Top of page

B7 What happens if the trustees have not complied with the requirements?

If the trustees have not complied with the requirements to dispose of their charity land before entering the contract for disposal, then the disposal will not be valid unless:

  • we make an Order before the transaction is completed

or, if the transaction is already complete,

  • the purchaser has acquired the land ‘in good faith’ whether or not the trustees of the disposing charity have complied with all the relevant requirements – see section B7.4 and also section E5, or 
  • we ratify the situation with an Order under s117(1)

 

B7.1 Disposed of land in error – trustees didn’t know they needed to comply

It is unlikely this situation would occur if the trustees have consulted a legal adviser.

If carrying out the disposal without a legal adviser, the trustees should have read our guidance and there should be no reason for them not complying with the requirements – however:

  • if they haven’t and the land has been bought ‘in good faith’ then the purchaser may be able to rely on the saving provisions in s122 (see section B7.4 and also section E5)
  • if the purchaser knows or ought to have known that the transaction was not carried out in a valid way then they cannot rely on the saving provisions – it is possible the transaction will be void and we must tell the trustees to go back to their adviser for legal advice
  • if the problem is discovered some time after the event it may not be a simple matter to rectify – for example, where the purchaser has already built houses on the land and it cannot simply be returned to/re-vested in the charity

In either of these last two situations it would be possible to ratify the disposal retrospectively with an Order under s117(1). Caseworkers should take legal advice if we are asked to ratify a disposal retrospectively.

 

B7.2 Trustees have disposed of the land but got their timing wrong

The situation may be that the trustees have complied with the requirements or s119 or 120 but after they’ve entered the contract:

  • if the transaction has not been completed, we could ratify this with a s117 Order
  • if the transaction is completed and the land has been bought ‘in good faith’ then the purchaser may be able to rely on the saving provisions in s122 (see section B7.4 and also section E5)
  • if the purchaser knows or ought to have known that the transaction was not carried out in a valid way, ie that the timing of complying with the requirements was deliberately wrong, then they cannot rely on the saving provisions – we would advise that the transaction is likely to be void and tell the trustees to go back to their adviser for legal advice

 

lawyer_refer

Consult legal for advice about these situations

 

B7.3 Deliberate failure to meet the requirements

If it is clear the trustees of the disposing charity have deliberately ignored some of the requirements of s117 then the case should be passed to IAE for assessment and possible more in depth investigation.

 

B7.4 Saving provisions and remedial action

There are saving provisions in s122. If the purchaser has acquired the land in good faith, the disposition is valid whether or not the trustees have complied with the requirements of the Charities Act. For more information see section E5.

 

If the trustees have not complied with the legal requirements and the person acquiring the land knows or ought to know this to be the case, the transaction is unsustainable. In such a case we can advise that the transaction is likely to be void and that the title to the property may remain in the charity or its trustees. The trustees should start the process again ensuring they meet all the requirements. However, case officers should consult legal for advice before advising on this as there may be other options open to the charity. These options are to ask us to:

  • ratify the transaction by an Order under s117(1) – it will be a matter for the charity’s and the purchaser’s legal advisers to decide on what, if any, further documentation is required
  • make an Order authorising the execution of confirmatory disposal documentation
  • take, or require the trustees to take, any necessary steps to re-vest the title to the property in the charity or its trustees and insist they do not attempt to repeat the invalid disposal.

Although we can make an Order to ratify a transaction, where the statutory requirements have not been complied with, it is unlikely that we would in circumstances where the trustees have deliberately ignored some or all of the requirements of s117 – the trustees will need to consult their legal adviser. Caseworkers should take legal advice if we are asked to ratify a disposal.  

Top of page 

B8 Disposals for less than best price or less than best rent

There are some circumstances where a disposal will be outside of the requirements of s117 – for example,

  • a disposal by way of a lease for less than best rent to a beneficiary to fulfil the purposes of the charity
  • sale for less than best price to another charity with similar/same purposes, authorised by the trusts of the disposing charity – see section E2.4

 

However, where a disposal for less than best price/rent does not fall into one of these exemptions, we may need to make an Order. We would need good evidence that the disposal really is in the best interests of the charity. Two examples of such a situation might be as follows.

  • The disposal is to an organisation such as a public authority that is committing to use the property long term for a purpose that is the same as or very similar to the objects of the charity – we may make an Order and waive the need for a surveyor’s report. Although the public authority is not a charity or beneficiary, the fact that they will continue to use the land for purposes that the charity would have used it is good reason for us to give our consent to the disposal even if it is below the surveyor’s valuation.
  • A charity wants to use a building it owns but can’t afford to carry out the work to upgrade it. The charity wants to sell the property to a local builder, at less than market rate, who will do the work and then lease the building back to the charity on favourable terms. We would question, ‘Is this really in the best interests of the charity?’, ‘Is the builder getting a better deal than it looks at first sight and is the charity losing out?’
    • The charity would have use of the building but the builder is getting a good deal buying the property undervalue. The charity will no longer own the valuable asset and will be paying rent for a property they used to own and at any time the builder could sell the property and the charity would no longer have use of it. On the other hand the charity could have clauses written into the agreement of sale that guaranteed their use of the property for a set time in the future.
    • We would have to weigh up the situation and question whether or not it would be more economic for the charity to sell the property at full market value and purchase other suitable property from which to carry out its work. Alternatively whether or not the charity can take out a loan for the work to be done and still retain ownership.

In this type of case we would not become involved in the technical sufficiency of the documentation. If we consider there may be problems we may suggest the trustees return to consult their legal advisers about the transaction as a whole (not just the disposal).

 

See also section D2 – Disposal by building preservation trusts.

Top of page 

B9 No power or prohibition in the governing document

Most charities will be able to use the power in TLAT 1996 or some other statutory power – see section E3.

 

Prohibitive clause in the governing document

However, there may be a clause in the governing document that expressly prohibits the disposal of the charity’s property. If this is the case then the charity will either need a Scheme to change the governing document or the trustees may be able to use a power of amendment to change the governing document. It is possible in this circumstance that the land in question may be permanent endowment/designated land.

 

Power of disposal only with consent of the court

Some governing documents specify that the charity’s property may not be disposed of without the consent of the court. In these circumstances our Order may authorise the disposal even though the governing document specifies the consent of the court is needed (s105(7) of the Charities Act) – see section E2.5.

 

Power of disposal only with the consent of the Commission

Following s36(1) of the Charities Act 1992, that requirement for our consent no longer applies. It also has the effect of nullifying a provision in the governing document that requires Commission consent to any disposal of land.

 

B10 Land vested in the Official Custodian for Charities (OC)

When land has been vested in the OC, trustees have power to carry out in his or her name and on behalf of the OC all the functions they could properly do in their own name and on their own behalf as if the land were vested in them. It is important to note that the OC does have to be a party to any transfer deed.

 

However, the situation is altered if the land has been vested in the OC under s76(3)(c) as part of an inquiry. In this case the trustees may not dispose of the land without an Order from us – see section E3.2.

 

See section G for a form of conveyance/transfer and a form of lease where land is vested in the OC.

Top of page 

B11 Rentcharges

Rentcharges are uncommon and it is not often we will have dealings with them. For information about rentcharges, see section E1.4.

 

We may need to be involved when trustees wish to release a rentcharge for less than ten times its annual amount. In such circumstances trustees will have to:

  • get our consent under s117(1) or comply with the procedure in s119

and

  • include the necessary statements and certificates in the disposal documents

We will not generally give consent where the release price is substantially less than ten times the annual payment unless the trustees show that it is in the interests of the charity for the rentcharge to be released.

Top of page 

B12 The effect of the Localism Act and Assets of Community Value provisions

The Localism Act contains provisions for Assets of Community Value. This is intended to allow community groups to compete in the market on a more equal footing with other purchasers to buy local amenities of value to their community, such as community centres, village shops or open spaces, in order to preserve and maintain them for community use.

  • Local authorities will maintain a list of land and buildings in their area that local community groups have successfully nominated as ones that will enhance the community’s social wellbeing or social interests.
  • When listed assets come up for sale communities will have the opportunity to create a pause in the process allowing them to compete in the open market to buy the asset.
  • The vendor must first notify the local authority that they plan to dispose of the asset and there will then be six weeks for local community groups to express an interest in bidding.
  • If a community group expresses such an interest, a six month moratorium is imposed giving the community group time to prepare a bid and funding.
  • At the end of this time the vendor may sell the asset under normal market conditions on the open market at the market price (community groups are not given preference).
  • Vendors, including charities, must comply with the Localism Act requirements if their property is on the local authority’s list or the disposal will be void – however…
  • Charities will probably find that in most cases where they wish to dispose of such property they will be able to comply with the requirements without a six month delay.
  • For more guidance on this and the conditions that apply to charity disposals, see Government guidance - Community Right to Bid: non-statutory advice note for local authorities 

Top of page

B13 Statements and certificates

When trustees dispose of their charity’s land, they will have to include statements and certificates in the disposal documents. These are outlined in section F of Sales, leases, transfers or mortgages: What trustees need to know about disposing of charity land (CC28) and there is extensive information in the Land Registry Practice Guide LRPG 014 ‘Charities’ 

Charts

C1 Proceeds of sale

The following is a brief outline of what normally happens to the proceeds of any disposal of charity land
a) land is simply held for the general purposes of the charity proceeds applied for the general purposes of the charity
b) land is held on trust as an investment to generate income (trust for investment) capital proceeds of any disposal will also be held on trust for investment
c) land held on trust for use for a specific purpose – trusts make a workable provision for the application of the proceeds of the disposal proceeds applied in accordance with the prescribed trusts (eg village hall model trust deed)
d) land held on trust for use for a specific charitable purpose – trusts make provision for application of proceeds but provision is not workable

trusts will have to be changed either by the trustees

  • using a constitutional power of amendment

or

  • by us
e) land held on trust for use for a specified charitable purpose – trusts make no provision for the application of the proceeds
i) where there is to be an equivalent replacement of the land

proceeds can be used to fund

  • replacement land

or if not all funds used for replacement

  • trust for investment with income being used for maintenance/upkeep of new property
ii) no replacement of the land
  •  a Scheme is likely to be required to apply the proceeds for appropriate charitable purposes
  • there is no hard and fast rule that the capital proceeds have to be made subject to a trust for investment, although that will often be the most appropriate application, having regard to the fact that the original trusts contemplated the indefinite use of the property for the specified charitable purpose
  • where only a small part of designated land is sold so that the remainder of the land can continue to be used for the purposes for which it is held, the proceeds of sale are likely to be held on an implied trust for investment with the income being used to maintain the remainder of the land
A trust for investment is expressly required by the governing document, or the land disposed of may have been subject to a trust for investment, or the land has been disposed of by way of the grant of lease at a fine or premium, rather than by way of sale
  • if a trust for investment is required of the proceeds of sale, only the income from the investment of the proceeds is available to be spent as income
  • the fine or premium is ordinarily subject to the trust for investment
  • any rent derived from the lease is ordinarily subject to the trust for application – that is, it will provide an income for the charity

(This is because a fine or premium is a capital payment corresponding in nature to the proceeds of a sale – see section 42(4) of the Settled Land Act 1925. The position may be different if the charity has been authorised to adopt a total return approach to investment.

 

 

Case Studies

 

D1 Who is a connected person?

 

D1.1 Is a local authority a connected person because they are a donor?

Some cases have dealt with the situations where a local authority has leased property to a charity for a 'peppercorn' rent on the condition that part of the property is leased back to the local authority. The local authority is effectively a 'donor' in such a case and under s118(2)(b) it is a 'connected person'. The leaseback would require an Order.

A similar situation could occur where there no initial rent charged – even one at a 'peppercorn' rate – and the property is a straight donation. If this is leased back to the donor this is a more obvious example of a connected person case.

 

D1.2 Is a recently retired trustee still a connected person?

A trustee who retires prior to the date of any contract for the disposal is no longer a connected person. However, if the trustee was involved in some of the discussions regarding the proposed disposal, such a disposal may still constitute self dealing and as such would be voidable unless authorised by an Order under section 105.

 

D1.3 Is a widow or widower a connected person?

Under s118 of the 2011 Act, the spouse or civil partner of a person specified in s118(2)(a) to (d) is a connected person. However, when a married trustee dies or retires, he or she is no longer a trustee so the question of whether a widow or widower or spouse is a connected person does not arise provided that the deceased or retired trustee was not a trustee at the date of disposal or the date of any contract/agreement to dispose.

 

However, even before the agreement for the disposal is entered into, if someone who is a trustee takes part in pre-contract negotiations for a disposal to his or her spouse or civil partner, but dies or retires before the agreement is entered into, the remaining trustees might well be advised to seek an Order under s105 because the trustees need to be able to show the transaction is in the interests of the charity. Such a disposal, though, would require an Order under s117 if a connection exists between a trustee and the prospective purchaser at the time of the exchange of contracts.

The transaction will be voidable if an Order has not been obtained prior to an agreement for the disposal unless an Order is obtained subsequently. Section 122 is unlikely to apply where the disposal is to a connected person as the connected person will not usually be a purchaser for value acting in good faith.

 

D1.4 Is a subsidiary trading company a connected person?

A trading company that is owned by the charity is a connected person, whether or not the charity is incorporated and whether or not any of the directors of the trading company are also charity trustees.

 

Where a charity is unincorporated, the trustees of the charity collectively have a substantial interest in the shares of the trading company.

 

Where the charity is a company and its directors are therefore the charity trustees, a substantial interest in the shares of the trading company is attributed to those trustees by the effect of subsection 2(h) of s118 of the 2011 Act.

 

Therefore, an Order under s.117 must be obtained to allow the disposal if it is to be made to a connected trading company of a charity. If an Order is required and has not been obtained, such a disposal is likely to be null and void.

 

D1.5 Disposal to the director of a company and necessary approval by members of the company

Section 190 of the Companies Act 2006 requires certain transactions (i.e. the transfer of a substantial non-cash asset) with a director or a person connected with a director to be approved by a resolution of the members of the company. Under s201(2)(b) of the Charities Act this approval is ineffective without our prior consent. Section 190 of the Companies Act 2006 does not give express authority for a disposal of land from a charitable company to a director for the purposes of s117(3)(a) of the Charities Act.

 

Consequently, where we are asked for prior consent to the members considering whether to authorise such a disposal, we will often need to make an Order under s117(1) as well as giving prior written consent under s201.

 

D1.6 Can a local authority lease property to itself?

It is uncertain whether a body corporate acting in different capacities can hold land both as landlord and as tenant in some circumstances. Local authorities and social landlords often find themselves on both sides following a transfer of engagements or large scale transfers of property. The position with a body corporate acting as trustee is arguably distinct because the authority is acting in two separate legal capacities – charity trustee and the corporate capacity as local authority. This is an area that also involves the application of local government legislation, an area where the Commission does not have expertise.

 

It therefore seems to be sensible for us to acknowledge that the rule in Rye v Rye [1962] A.C. 496 may have an application. This case established that it is not technically possible for an individual to grant a lease to himself. This is because an individual cannot be both covenanter and covenantee under an agreement. In that specific case, however, the leasehold and freehold interests were both held for the private benefit of the same individual; neither of the interests was held on trust. The principles of that case are therefore not identical to those that arise with a trust. It is up to the local authority to take their own legal advice about how the transactions can be lawfully completed. Separate legal advice for the authority as trustee and in its corporate capacity (from separate legal sources) may be necessary as part of a proper decision making process – but again this is a matter for the parties involved.

 

There are two possible ways to deal with this situation.

  • The local authority appoints a nominee to hold the lease – the nominee would then sub-lease to the local authority to avoid the local authority from self dealing. The circumstances to take into consideration would include:
    • the length of the lease
    • whether there is likely to be a dispute or possible contentious issue that makes it likely that someone would seek to challenge the validity of the lease on Rye grounds
    • when a potential conflict of duty will clearly be difficult to manage
  • Legal view is that it is not an absolute requirement to have a nominee in each case where a local authority acts as trustee holding the freehold and the leasehold in two different capacities

 

There may be plenty of precedents for the local authority concerning transactions like this, perhaps on a smaller scale and so you may well find that the issue is not a matter that is especially troubling for the council. The trustee may be able to demonstrate adequately that the transaction will be fair and reasonable and that the trustee, when making the decision, was not influenced by seeking to gain an advantage from his position as trustee. If circumstances like this arise then it may be possible for a lease to be granted despite the common identity of the parties. We must then approach the matter in the same way as any other proposal to lease charity property to a connected person.

Top of page 

D2 Disposals by building preservation trusts

 

For financial reasons it is often necessary for a building preservation trust to have an end user, ready to purchase the relevant property, before the charity commits itself to the original purchase. Occasionally this may be one and the same person. Entry into the collateral sale contract – whether with the original vendor to the charity or not – will be subject to the controls in s117. (A collateral sale contract is a contract that is not part of the contract under which the charity purchased the property but stands side by side with that contract.) As it is unlikely the charity will be able to comply with the requirements of s119 at the time of the original purchase, an Order will be required to authorise the trustees to enter into the collateral sale contract.

 

In these cases great care must be exercised to ensure that:

  • the purchaser does not profit from this arrangement at the expense of the charity
  • an appropriate covenant or other agreement by the purchaser to ensure continuing future public access to the property is included in the agreement for sale – trustees should be aware of their own responsibilities to monitor the use of the property once sold

 

Once the trustees have identified a property they would like to restore, they should approach the owner to negotiate a price for its sale to the trust. After reaching agreement in principle, including the payment of the surveyor’s fees by the current owner, the trustees should engage a surveyor to:

  • examine the present condition of the property and the charity’s proposal for its restoration
  • advise the trustees on a guide price for the purchase of the property
  • advise the trustees on the likely market value after the restoration has been completed

 

If the owner does not accept the prices suggested by the surveyor, the proposed restoration cannot proceed but, as the owner has agreed to pay the surveyor’s fees, the trust has not lost any of its funds in the process.

 

If there is agreement on price, the trustees should:

  • enter into a formal contract with the owner to buy the property for the sum advised by the surveyor and, following the completion of the restoration work, to sell the property back to the original owner. Entry into such a contract will, as indicated above, be likely to require our consent under s117(1)
  • carry out the proposed work

 

The price at which the property is to be re-sold back to the original vendor would require very careful consideration. The trustees would need to appreciate that an agreement to sell at the market value at the time the restoration was completed would expose them to the risk that the difference between the purchase and sale prices might be much lower than the cost to the charity of the restoration. The contract would need to contain suitable arbitration provisions in the event of an inability to agree a figure for the market value at the date of the completion of the restoration. The contract would need to specify a maximum time limit for the completion of the re-sale. The trustees would need to be satisfied about the financial standing of the purchaser.

 

The Order which we make to give consent to entry into the contract should be made to lapse if the contract is not entered into within three months of the date of the Order. If the proposal was revived subsequently, a fresh professional evaluation of the terms would be necessary before a further Order could be made.

Top of page

 

D3 Disposals for less than best price or less than best rent

Where a charity is disposing of its charity land to another charity, for less than full value, it may not have to comply with the requirements of s119 or s120 – see section E2.4. The following are examples of when this may apply.

 

D3.1 Charities for the relief of those in need in the same parish

A disposing charity working for the relief of those in need in ‘Parish A’ owns land as an investment. It transfers that land to another charity with similar objects, also for the relief in need of those in ‘Parish A’. Under s117(3)(c) the disposing charity does not have to comply with the requirements of s119. The trustees therefore do not need to get a surveyor’s report, do not have to advertise the disposal and are not compelled to obtain the best price, ie market value, for the land as the objects of the receiving charity are not wider than the disposing charity.

 

If the property is permanent endowment, and the disposing charity has the power to dispose of such property, the provisions setting out the power will usually set out the terms on which the property can be transferred and whether it will continue to be held on trust. In the absence of an express power, it is not generally possible to transfer permanent endowment except in certain circumstances such as replacement of land or a statutory power such as in section 268 – 274 (for smaller charities). Where there is neither an express power nor a statutory power, a Scheme is likely to be required to transfer permanent endowment to another charity or to other trustees.

 

D3.2 Charities for relief of those in need in different parishes

A disposing charity working for the relief of those in need in ‘Parish A’ disposes of land to another charity whose objects are for the relief of those in need in both ‘Parish A’ and also ‘Parish B’. The objects relating to the land being transferred would need to be held on special trusts and limited to the purposes of the original charity - ie to the relief in need of only ‘Parish A’. If the objects of the charity receiving the property are wider than the charity giving, the property should not be disposed of by that second charity to be used for purposes beyond those of the purposes of the transferring charity.

 

D3.3 When should there be no reduction in the market price?

A charity may wish to dispose of charity land to an organisation which is also a charity but which has objects that are not sufficiently similar to its own. In this case there can be no exemption and the normal requirements for a disposal will apply. So, there should be no reduction in the disposal price and the disposal would be subject to the full requirements of s117 – 121.

 

D3.4 Is there still a need to advertise?

If land which is the subject of a disposal is to stay in the charitable sector, we can relax the requirements that the disposing charity advertises the disposal fully on the open market. We can authorise a disposal in these circumstances provided:

  • we are satisfied that the disposing charity has obtained proper advice from a qualified surveyor acting exclusively for that charity
  • that the agreed price is not less than the valuation placed on the property by that surveyor

 

We should ask to see a copy of the surveyor’s report but where the surveyor is doubtful or uncertain over recommending the agreed terms we may ask for a further surveyor’s report or possibly a confirmatory valuation from the District Valuer. There are cost implications for us and caseworkers should seek legal advice before doing this.

 

Consent to the disposal should be given by Order under s105 and s117 of the Charities Act.

 

If the trustees receive a higher offer for the disposal before the transaction has been completed, they should accept it on the principle that they should achieve the best terms reasonably obtainable for their charity. Accepting the higher offer is effectively gazumping and, although it may be unpopular, is a proper practice in these circumstances.

Top of page

Legal/Policy/Accountancy Framework

 

E1 Definitions

 

E1.1 What do we mean by charity land?

This is set out in CC28 section A7

  • Briefly it is land held by, or on trust for, a charity in England or Wales together with any buildings or structures on the land.
  • In this context 'land' also covers any estate, interest or easements over the land. These could include, for example, a right of way or access to equipment on the land. It could also be a right, such as fishing rights in a lake or river on the land.

 

Designated land or functional land?

Designated land is settled on the charity on specific charitable trusts and is required to be used for a particular purpose or purposes of the charity. This is different from functional property which is used by the charity to further its charitable objects but is not required to be used in this way by the trusts of the charity.

For example:

  • land may be transferred to an almshouse charity specifically for almshouses to be built and used to relieve need – the almshouses are likely to be designated property
  • a charity may have objects that provide general relief of need but it is not required to provide accommodation – should the trustees choose to provide such accommodation, that property would be functional not designated

 

E1.2 What do we mean by disposal of land?

The Charities Act uses the term ‘disposition of land’. In this guidance we talk about the disposal of charity land and in this context a disposal is by way of:

  • lease
  • freehold sale

But disposal will also include, for example granting:

  • rights (such as fishing rights)
  • easements
  • rights of way
  • a wayleave to allow access to facilities on that land.

 

However, entry into (rather than completion of) a contract or agreement for sale, for example, is not a disposal. It is at the point of the transfer or completion of the transaction that the disposal takes place. See also section A7 of CC28.

 

E1.3 Connected person

The full definition of who is a connected person in the context of disposal of charity land is set out in s118 of the Charities Act.  

Briefly it means someone who:

  • at the time of the disposal

or

  • at the time of the contract for the disposal

is:

  • a charity trustee or trustee for the charity
  • a donor of any land to the charity
  • a close relative of either of the above
  • an officer, agent or employee of the charity
  • the spouse or civil partner of any of the above
  • a person carrying on business in partnership with any of the above
  • an institution controlled by any of the above
  • a body corporate in which any of the above has a substantial interest

 

The meanings of some of the terms used in this list:

  • child, spouse or civil partner
  • controlled institution
  • substantial interest in body corporate

 are set out in ss350 to 352 of the Charities Act

 

For some examples of more situations, including:

  • recently retired trustees
  • the widow or widower of a trustee
  • a subsidiary trading company
  • disposal to a director of a company

see section D1

 

E1.4 Rentcharge

A rentcharge is an annual fee payable in respect of land to a person who is not the owner of the land and who has no legal interest in it. The amount of the rentcharge is usually fixed and bears no relation to the value of the land. Rentcharges can prove difficult to collect, especially when the land that was originally subject to the rentcharge has been split up and is now owned by a number of different people. Where fixed, its real value declines with inflation and therefore it is not a suitable investment for a charity.

 

The Rentcharges Act 1977 provides that, subject to certain minor exceptions, every rentcharge shall be extinguished 60 years after the passing of the Act (ie 21 July 2037) or 60 years from the date on which the rentcharge first became payable if later. No compensation is payable when this happens.

 

For these reasons, the trustees of a charity which owns a rentcharge of £10 or more should be encouraged, whenever the opportunity arises, to negotiate with the landowner for its release under s127 of the Charities Act.

 

Under s 127(1) where a rentcharge is released by a charity entitled to it for a payment of not less than ten times the annual amount of the rentcharge:

the release is a disposal which is not within the scope of s117

the obligations in s122 regarding statements and certificates do not apply

 

Under s127(2), where trustees release a rentcharge for a payment not exceeding £1000, they are entitled to recover the costs they incur in proving title to the rentcharge (to show they have the right to release it). These costs, which are not limited to any amount, are recoverable from the person in whose favour the rentcharge is being released (ie the owner of the land subject to the rentcharge). This provision is intended to prevent the payment received by the trustees for the release from being consumed by the costs of proving title and to deter landowners from putting trustees to disproportionate trouble to prove title. The amount of £1000 may be varied by order of the Secretary of State under s128.

 

E1.5 Advowson

This is the right of a person or institution to put forward an individual for a vacant living of the Church of England – see the fuller definition in section G7 of CC28.

 

The sale of an advowson is not subject to the constraints of s117 of the Charities Act.

 

E1.6 Granting a licence or a lease

  • A licence:
    • gives the licensee a contractual right to use the part of premises to which the licence refers for an agreed purpose
    • does not confer an interest in the land and is therefore subject to contract law – it has no effect on the nature of the charity’s legal interest in the property
    • is likely to be granted where the lessee is to carry out a particular activity and the charity needs to retain access to the part of its premises to be occupied

Examples of a licence might include where a bar business is set up in a village hall. The licence would give the licensee access to the hall to carry out the bar business but would still allow the hall to be used for the usual other activities that take place. (In this example the licensee would also need to comply with the alcohol licensing laws, which is a different situation from the licence the trustees are granting for the use of part of the hall.)

 

  • A lease:
    • gives exclusive possession of a defined area of land
    • is for a fixed period (the term of the lease)
    • creates an interest in the land
    • is more likely to be granted where the charity’s land, property or premises is to be occupied on a more permanent basis and the lessee will have independent access and his/her own separate areas

Rent will usually be paid but this is not an essential element in recognising a lease. Exclusive possession for a term under an enforceable agreement, for example a deed, will be sufficient. It is probable that the letting of a residential unit to a tenant will be a lease rather than a licence.

 

However, it is not necessarily what term is used, licence or lease, but rather the effect of the arrangement.

  • An agreement that confers exclusive possession of the premises is probably a lease.
  • An agreement that merely confers a privilege to occupy the land of another for some particular purpose is a licence.

This can be a difficult legal area and if there is any doubt as to whether the trustees are granting a lease or a licence, seek legal advice.

 

No specific power is required by a charity to grant a licence even over designated land, and s117 procedures do not apply.

 

However, the charity cannot grant a licence which is incompatible with the trusts to which the land is subject. For example, if the designated land is a playing field designated for the use of a recreation ground charity, it would probably not be possible for the trustees to grant a licence to use the land as a car park (except perhaps for an occasional or ‘one-off’ event). In addition, the licence should be granted on the best ‘market terms’ unless it is intended to further the objects of the charity.

 

To grant a licence to a connected person may still need authority from us by way of an Order even though s117 does not apply because of the potential conflict of interest in the transaction.

 

E1.7 Option or pre-emption – is either a disposal?

Option

An option is an agreement which gives someone (‘the option owner’) the legal right, for a price, to demand the disposition of a charity’s land to him or her if he or she chooses, on terms which are set out in the option agreement. For the purposes of s117 this is an agreement for the sale of the land. The trustees should normally comply with s119 or s120 before granting an option. If this is not done, or if the option owner is a connected person, then the option agreement cannot be completed without an Order under s117(1).

 

An option may be included when charities purchase land. Agreements by charities to purchase land may include an undertaking or conditional undertaking to make a subsequent disposition of the land or part of it. This could include not only an undertaking to transfer the property but, for example:

  • an undertaking to grant an easement of way over the land acquired
  • for the accommodation of land retained by the vendor
  • to lease back the acquired land or some of it.

We consider that included in this category is the option element of an equity sharing agreement which is simply one aspect of the terms under which the charity and the employee agree to purchase the land as joint owners.

 

We consider the language in s119 is inappropriate to embrace an agreement that is essentially for the purchase of land but which incidentally contemplates a disposition or possible disposition of the land which is to be purchased. Accordingly, such an option does not require compliance with s117 in order to be valid. However, a disposition made under the option will need to comply with s117. It will often not be possible to comply with section 119 or 120 at this stage and consequently an Order will be required under s117.

 

In Moore v Clench (1875) 1 Ch Div 447, the court was of the view that if the trustees of a charity entered into an agreement to dispose of land, which agreement did not require our consent, and which agreement was valid without such consent, then any legal requirement that the actual disposition contemplated by the agreement should be authorised by us either:

  • did not apply

or, if it did apply,

  • it would be an abuse of power on our part to withhold the authority.

 

We adopt the second of the possibilities suggested in Moore v Clench, as this permits the withholding of consent in exceptional circumstances. This means that where s117 is not relevant to the grant of the option, we would not need to be satisfied that the actual disposition is in the interests of the charity as at the date of the disposition. We would only refuse to make an Order if the grant of the option in the first place was manifestly unfair and an abuse of the trustees’ powers or there are other exceptional circumstances justifying us not making an Order. (See Decisions of the Commission – Shree Vishwakarma Association of the UK.) 

 

Pre-emption agreement

A pre-emption agreement differs from an option in that the right of the purchaser to demand a transfer on the terms of the agreement only arises if and when the charity decides to sell. The granting of a pre-emption agreement is not, in itself, an agreement to effect a disposal of land so ss119/120 do not apply. The right of pre-emption is effectively converted into an option if and when the vendor charity decides that it actually wants to sell the property.

 

A charity which has given a right of pre-emption over its land is not in any position realistically to follow the process in s119 or s120 at this time, because it then becomes legally committed to sell in accordance with the terms previously agreed with the holder of the right of pre-emption, if that person wished to exercise his or her rights. The disposal which is made to the owner of the right of pre-emption must therefore be sanctioned by Order under s117(1) unless an exemption applies.

 

This gives us the ability to consider whether the terms of the right of pre-emption are reasonable, and whether the decision to sell at all is reasonable in the context of having to sell on the pre-emption terms. The unexpired duration of the pre-emption period will be an obvious consideration here. In the last resort, if we think it to be in the interests of the charity to frustrate the contractual rights which it granted to the holder of the right of pre-emption, we can then do so by a refusal to make the Order.

 

E1.8 Transfer of the title to charity land to new trustee(s)

This is not a disposal in the context of this guidance; the charity land stays with the charity. This is different from the disposal that will result in the land no longer belonging to the charity.

 

E1.9 Adverse possession

Adverse possession is where someone (a dispossessor) takes possession of land/property usually unilaterally – ‘squatting’

 

Adverse possession of unregistered land

For unregistered land the squatter must remain in adverse possession for 12 years at which point the squatter will be able to acquire a possessory title which may take precedence over the charity’s title.

 

in such cases we may consider whether or not the trustees might be liable for any loss to the charity and whether or not the trustees were negligent in allowing entry and subsequent dispossession by squatters

 

Adverse possession of registered land

  • Following implementation of the Land Registration Act 2002, where someone has been in adverse possession of registered land for 10 years, they have the right to seek registration of themselves as owners of the land. The Land Registry has to give notice to the true owner of such an application
    • The land owner then has a period of 65 business days to object to the adverse possession, and:
      • if they do so the application fails
      • if they do not then the squatter becomes the registered proprietor according to the land registry
    • If the owner objects but is unable to evict the squatter in the two years following the first application, the squatter can apply again after this period and be successful despite the opposition of the owner
  •  This cannot happen where each of the beneficiaries has an interest in the land, but this is unlikely to be the case as it is usually the trustees who have the interest in the land
  • Where such claims are made and trustees receive notice of an application, they will need to consider, in consultation with their own legal advisers, what steps they should take to resist the application – this is not an issue we will become involved in

 

E1.10 ‘Self certification’

We’ve used this term in the guidance to stand for the situation where trustees can dispose of their charity’s land without the need to come to us for an Order by complying with the requirements of either s119 or s120. For more information on this see sections C and D in Sales, leases, transfers or mortgages: What trustees need to know about disposing of charity land (CC28).

Top of page 

E2 When trustees need consent and when they can dispose of land without it

 

E2.1 When do trustees need our consent to dispose of charity land and what are the exceptions?

The first principle is that all disposals of charity land need our consent as set out in s117(1) of the Charities Act.

 

However, the subsections following this then set out the situations where this does not apply:

  • under s117(2):
    • if the disposal is not to a connected person, or a trustee for or nominee of a connected person, (it stands then that any disposal to a connected person does need our consent)

and

    • the trustees have complied with the requirements set out in s119 or s120 before they have entered into an agreement to the disposal

 

  • under s117(3) any disposition that:
    • has general or special authority expressly given by any statutory provision contained in or having effect under an Act or any Scheme legally established – see section E2.6
    • requires the authorisation or consent of the Secretary of State under the Universities and College Estates Act 1925
    • where the land is held by or in trust for a charity, is made to another charity otherwise than for the best price that can reasonably be obtained and is authorised to be made like this by the trusts of the disposing charity
    • is a lease granted by or on behalf of a charity and in accordance with its trusts to any beneficiary under those trusts where the lease is granted for less than best rent and is intended to enable the premises to be occupied for the purposes or any particular purpose of the charity – see section E2.4
  • under s117(4) any disposal of:
    • land held by or in trust for an exempt charity
    • land by way of a mortgage or other security
    • an advowson 

 

Where a disposal is not excluded from the requirements as set out above, there are requirements with which trustees must comply when disposing of their charity’s land without our consent under s117(2) of the Charities Act – see section E2.2.

 

E2.2 Requirements trustees must comply with when disposing of their charity’s land without our consent

  • When trustees can dispose of their charity’s land without our consent, they must have a power of sale and comply with the requirements set out in s119 or s120 of the Charities Act. These are all set out in sections C and D of Sales, leases, transfers or mortgages: What trustees need to know about disposing of charity land (CC28)
  • In addition, the disposal documents must contain certain statements and certificates to verify:
    • the land is held by or in trust for a charity
    • if the charity is an exempt charity
    • if the disposal falls into one of the circumstances in s117(3) of the Charities Act – see section E2.1

 

For further information about the statements and certificates trustees must supply, see section F of Sales, leases, transfers or mortgages: What trustees need to know about disposing of charity land (CC28)

 

E2.3 Why have these constraints and requirements?

The purpose of the provision contained in ss117 to 121 of the Charities Act is to foster among trustees a greater sense of their own responsibilities and to relieve us from the need to give consent to disposals which the trustees ought, without our official monitoring, to be able to carry out themselves with the benefit of appropriate professional advice. These sections of the Act do not give trustees the power of sale or other disposal; they provide a framework of constraints within which the trustees may use the powers of disposal which they have. The constraints on trustees in these cases are there:

  • to protect charitable assets by ensuring that the trustees obtain the best price reasonably obtainable for the disposal
  • where the disposal is intended to further the objects of the charity, that the disposal is expedient in the interests of the charity

See section E2.2 for information on the requirements with which trustees must comply to carry out a disposal without our consent.

 

E2.4 Disposals for less than full value

Trustees do not need our consent and do not need to comply with the requirements of s119 or s120 if the disposal is being made:

  • from one charity to another for less than full value where the disposal is authorised under the trusts of the disposing charity. This means where:
    • the disposal is furthering the purposes of the charity and is therefore in execution of its charitable trusts
    • a charity has a power conferred by its trusts to dispose of land to another charity

Whether or not the trusts of the receiving charity must be the same as, or closely related to, those of the disposing charity will depend on the terms of the ‘authority’ conferred by the disposing charity’s trusts.

For examples of how this may work see section D3

  • as a lease to a beneficiary of the charity for less than best rent where this enable the premises to be occupied for the purposes of the charity
    • the most obvious example of this is the case of a housing association letting property to its tenants for less than the full market value

 

E2.5 Governing document specifies Court consent before disposal

Although not common, the governing document of a charity may require the Court’s or our consent to be given to disposal made under express powers given by the governing document or to land disposals generally.

In the Charities Act 1992 (the 1992 Act), s36(1) stipulates that any provision:

  • establishing or regulating a charity and contained in, or having effect under, any Act of Parliament, or
  • contained in the trusts of a charity

shall cease to have effect insofar as it provides for disposals of the charity’s land to require the Commission’s consent.

This means, in effect, that where a charity’s governing document gives the trustees a power of sale or other disposal but makes that power exercisable subject to our consent, the requirement for our consent no longer applies. It also has the effect of nullifying a provision in the governing document which requires our consent to any disposal of land.

 

But s36 of the 1992 Act has no effect on provision which require the Court’s consent, whether or not as an alternative to our consent.

The Trusts of Land and Appointment of Trustees Act 1996 (TLAT 1996) s8(2) says:

  • If the disposition creating a trust of land makes provision requiring any consent to be obtained to the exercise of any power conferred by section 6, the power may not be exercised without that consent.

It follows that the Court consent requirement will now normally only be relevant if it was intended to apply to the use of any power to dispose of land by the charity (thus including the power in section 6 of TLAT 1996) and not merely to a disposal under the express power in the governing document with the use of which power the consent requirement was associated.

 

This is a matter of interpreting the words used. If a governing document says, for example:

  • ‘The land belonging to this trust shall never be disposed of without the consent of the court’

it would seem to be the case that the Court consent requirement applies to the use of any power of disposal. However, in practice, most Court consent requirements were associated only with the use of an express power in the governing document, In these cases the statutory power can be used without the need for the consent of the Court.

 

In some cases the Court consent requirement will apply to any disposal of land, or to any disposal of a particular type. Such a provision is still effective, because it will engage section 8(2) of TLAT 1996. In practice, however, the trustees do not have to apply to the Court, because we can authorise the disposal by an Order made under s105 of the Charities Act

  • ‘…may authorise any act even though - …(b) the trusts of the charity provide for the act to be one by or under the authority of the court’

We should be prepared to give consent with little enquiry if the trustees can confirm to us that they have complied with the requirements of s119 or s120 of the Charities Act. We remind trustees on the online form that it is an offence under s60(1) of the Charities Act knowingly or recklessly to provide us with false or misleading information.

 

E2.6 Authority granted by statute or legally established Scheme

Any disposal for which general or special authority is expressly given in:

  • an Act of Parliament
  • a Statutory Instrument
  • other statutory provision having effect under an Act of Parliament
  • a legally established Scheme

is excluded from the provisions of s117. But where the authority is subject to the making of an Order of the court, such disposals are not excluded.

 

For example:

  • disposals by registered social landlords are authorised by the Housing Act 1996 and are therefore exempt from s117
  • many charitable housing associations are industrial and provident societies which are exempt charities – these also do not need to comply with the requirements of s117
  • disposals by the Churches Conservation Trust are exempted from s117 under s44(5)(bb) of the Pastoral Measure 1983
  • a Scheme which we make that specifically provides the power as well as the authority for a particular transaction would be excluded from s117
  • land disposed of in certain circumstances in the compulsory purchase regime will be exempt from s117 – see section E2.7

 

E2.7 Compulsory purchase

A range of utilities and statutory authorities use compulsory purchase legislation to obtain land essential for them to carry out their functions. The acquiring authority can make an order under the Acquisition of Land (Authorisation Procedures) Act 1946. The making of such an order brings into play the procedure for acquiring land and the right to compensation set out in the Compulsory Purchase Act 1965 (the 1965 Act).

 

Charity land is not exempt from compulsory purchase powers. In most cases trustees will be able to sell their charity land under a compulsory purchase order either complying with the requirements of s119 or without the need to comply with these requirements at all.

 

Section 3 of the 1965 Act provides that, where a compulsory purchase order has been made, the land may be disposed of by agreement between the charity and the purchasing authority, If agreement is not reached and the disposal proceeds strictly in accordance with the provisions of schedule 1 to the 1965 Act, then it is taken outside of the scope of section 117. But section 42(7) of the Law of Property Act 1925 indicates that this procedure should only be used in special circumstances. If the transaction can reasonably be completed using other powers, then this should happen. Section 117 then applies in the usual way. If the acquiring authority also happens to be a connected person (although this is unlikely) then the procedures for disposal to a connected person apply.

 

This means that, typically, in the absence of such agreement, the acquiring authority gives a ‘notice to treat’ under section 5 of the 1965 Act. If the landowner does not agree to negotiate with the acquiring authority, or if no agreement can be reached as to the amount of compensation, the question of compensation is referred to the Land Tribunal. The acquiring authority is also able, having issued the notice to treat, to enter and take possession of the land under section 11 of the Act (and interest is payable on the amount of compensation from that date).

 

When the landowner refuses to accept the compensation agreed or awarded by the Lands Tribunal or refuses to convey the land, section 9 of the 1965 Act enables the acquiring authority to pay the compensation into Court and execute a deed poll vesting the landowner’s interest in the land in itself. If the trustees did simply refuse to convey the land then s117 would not apply as the issuing of a deed poll would mean that the land had not been ‘disposed of’. (However, in such a situation the trustees would almost certainly be personally liable for the costs incurred as a result of the compensation being paid into Court.)

 

Any disposal which is made by the trustees after the service of the notice to treat and where agreement is reached, thus avoiding the payment of the compensation money into court, is within s117.

 

Charities with a power of sale

A compulsory purchase order does not constitute ‘general or special authority’ for a disposition of charity land for the purposes of s117(3) since such an order does not expressly authorise any disposition.

 

Trustees who hold land:

  • which is subject to a compulsory purchase order

and

  • in respect of which they have an existing power of sale

therefore will need to comply with the requirements of s117 of the Charities Act if:

  • the sale is by way of an agreement

and

  • the procedure in schedule 1 of the Compulsory Purchase Act 1965 is not followed

or

if the disposal is effected by agreement after the service of the notice to treat and the compensation money is not paid into court.

 

However, if the procedure in schedule 1 is followed, or the strict statutory procedure following the service of the notice to treat is followed, section 119 does not apply.

 

Charities without a power of sale

Trustees who hold land which is subject to a compulsory purchase order can either proceed as if the disposal was an ordinary disposal, or they can:

  • rely on the power of sale conferred by schedule 1 of the 1965 Act, this statutory power constitutes ‘general authority’ under s117(3) of the Charities Act so that s119 would not apply to the transaction if the procedure in schedule 1 is followed

or

  • allow the strict statutory process following service of the statutory notice to take effect, when again section 119 would not apply

 

The disadvantage of these options is that the compensation/purchase money is paid into court and the charity risks being liable for the costs of obtaining payment out of court, if the court considers that it has been unreasonable for it to insist on compliance with the strict procedure.

Top of page 

E3 Do trustees have the power to dispose of their charity’s land?

Sections 119 and 120 do not confer powers of disposal on the trustees, they merely provide a set of constraints (where they apply) to ensure the trustees use the powers of disposal which they have in the best interests of the charity.

 

E3.1 Powers that may be available to trustees

Section B2 of CC28 sets out the powers available to most charities but there are other powers that may be available to some charities.

  • The main power available to charities is section 6 of the Trusts of Land and Appointment of Trustees Act 1996 (TLAT 1996) – this gives trustees the power to dispose of land as if they were absolute owners as long as they are exercised:
    • compatibly with the trusts of the charity
      • if the trustees sell designated land with the intention of replacing it with property to be used for the same purpose, we take the view that this does not involve any alteration of the trusts of the charity
      • it is not our policy generally that freehold designated land could be replaced with leasehold land – however, if the lease is sufficiently long (more than 75 years) it is our view that trustees can rely on TLAT and replace freehold land with leasehold property
      • where the disposal is for part of the designated land, such that it will not interfere with the ability of the charity to continue to fulfil its purposes, the trustees similarly can rely on TLAT to give them power to dispose – see also section B5.1
    • in compliance with the requirements of ss117 to 121 of the Charities Act
    • to the standard of care required by section 1 of the Trustee Act 2000, where that applies – see OG86 B2
  • Exceptions when the statutory power may not be used are where:
    • a restriction is imposed by an Act of Parliament
    • the charity’s governing document makes the disposal subject to the consent of a third party and consent is refused
    • the land is not held on trust, for example the corporate property of a company
  • Where a disposal is not compatible with the trusts of the charity, or the effect would be to alter the purposes of the charity, then the trusts should be amended before the disposal can proceed:
    • the trustees may be able to use a power of amendment to do this
    • if there is no suitable power of amendment then a Scheme or an Order will be needed

 

 

  • Other statutes that may provide power include, for example:
    • the United Reformed Church Act 1981 – this modifies the trusts of certain charities in a way which removes any incompatibility between the disposal of land and giving effect to the purposes of the charity
    • section 14 of the School Sites Act 1841 has a similar effect and relieves the need for compliance with ss117 to 121 of the Charities Act – many schools established under s2 of the School Sites Act 1841 use this power to dispose of property before the school moves to new premises (see section 2.8 of OG27 A2 Reverter of Sites Act 1987)
    • in some circumstances the power of sale conferred by Schedule 1 of the Compulsory Purchase Act 1965 – see section E2.7
  • We can provide the power to dispose of land by way of an Order or Scheme

 

Powers of disposal other than the standard statutory power will normally only be relevant if they are wider than the statutory power.

 

E3.2 Land vested in the Official Custodian for Charities (OC)

In most circumstances, when land has been vested in the OC, trustees have power to carry out in his or her name all the functions they could properly do on their own behalf as if the land were vested in them (s91(3) the Charities Act), this includes:

  • entering into contracts for the disposal of land
  • executing documents giving effect to disposals

 

However, under s91(4), trustees can’t exercise powers over land that has been vested in the OC under s76(3)(c) (as part of a s46 statutory inquiry) without an Order from the court or us.

 

E3.3 The criteria with which trustees must comply

As well as the power they need to have, before entering into an agreement to dispose of charity land, trustee must:

  • comply with the requirements of s119 or s120 where that section applies (see introduction on front page)
    • this, in certain circumstances includes obtaining our consent – if they fail to do this the disposal will be invalid and can only proceed subject to us making an Order under s117
  • have an outlet for the proceeds of sale
    • so the trusts must contain workable provisions which will enable the trustees to use the proceeds of the disposal and the income derived from the disposal or from the investment of the proceeds of the disposal
    • a charity disposing of designated land that is no longer required for the designated purpose and is not to be replaced using the proceeds, will probably not have a suitable outlet for the proceeds – in these cases we may have to make a Scheme to provide appropriate new trusts. In addition the trustees will need to comply with the requirement to advertise the disposal and seek representations before they enter into an agreement for the disposal – see section E4

 

E3.4 Corporate property

  • Corporate property of a charitable company is subject to the disposal constraints imposed by s117. The powers available to charitable companies when disposing of their own corporate property are found in their Articles of Association. The property of a Charitable Incorporated Organisation will similarly be subject to the disposal constraints imposed by s117.
  • Where a company is disposing of land it holds on trust for a charity, in its capacity as trustee, the company powers are not relevant. In this situation the company must rely on the statutory powers available to trustees and will also have to comply with the constraints of s117 where they apply and the requirements of s119 or s120 if able to dispose of property without our consent.

 

Disposals by a corporation, as charity trustee, to itself in a different capacity may present conveyancing and conflict of interest issues. These can arise where a corporation – typically a local authority – is disposing of land as a charity trustee to itself in its corporate capacity. See OG56 B3 for more information.

 

A corporate charity cannot own designated land as part of its corporate property and will therefore not need to comply with the requirements of s121 when disposing of corporate property. However, if the land is owned by an unincorporated charity which is under the trusteeship of a company, or by a charity which is incorporated by charter, the land may be held on designated trusts. In this case s121 requirements would apply.

 

As with other charities, an incorporated charity will need to give similar certificates and statements on the disposal of charity land. For information about these and also when and how the issue of these can be delegated, see section F and also section H of Sales, leases, transfers or mortgages: What trustees need to know about disposing of charity land (CC28).

 

E3.5 Sales by executors and administrators

Sales by executors and administrators in the course of administering the estate will not fall within the provisions of s117 since they are not holding the land in trust for the charity.

If, having completed the administration of the estate, the executors on the instructions of the trustees of the beneficiary charity dispose of land that has been left to the charity, such a disposal will then have become held on trust for the charity. In such a case the disposal will be subject to s117.

 

In practice, land is often appropriated to the beneficiary charity or charities at an early stage in the administration of an estate for tax reasons. This does mean that s117 will apply to a subsequent sale of such land. For more details of the s117 requirements in this situation, see the information note produced by the Institute of Legacy Managers and agreed by us.

 

If the executors do not need to sell the land in the course of administering the estate and have not previously appropriated it to the beneficiary charity or charities, their duty thereafter will be to convey the land to the trustees of the charity or at their direction. If the trustees direct the executors to dispose of the land, then s117 will apply to the disposal.

 

E3.6 Proceeds of sale

How the proceeds of sale can be used by the charity depends on how the land is held and how the disposal is made. The chart at section C1 sets out what normally happens to the proceeds of any disposal of charity land.

Top of page

E4 Giving notice for disposal of designated land

 

E4.1 Requirement to advertise disposal of designated land

Section 121 of the Charities Act imposes a requirement on trustees to give notice when disposing of designated land that is not being replaced – this is different from advertising to get best price. Apart from our possible involvement in making a Scheme when designated land is being disposed of, we might also become involved as the trustees may apply to us for a waiver from the requirement for this type of notice.

 

E4.2 Exceptions from this requirement

The requirement to give this type of public notice does not apply under the Charities Act:

  • s121(5) – if the designated land is being replaced or the disposal is by way of a lease for not more than 2 years with no fine or premium
  • s121(6) and (7) – if we make a direction that 121(2) does not apply to dispositions of land held by or in trust for a charity or class of charities:
    • this needs an application in writing by or on behalf of the charity or class of charities
    • we must be satisfied that it would be in the interests of the charity or charities for us to give the direction. We may consider this, for example:
      • if there has already been public discussion of the proposed disposal or where the trusts of the charity itself impose a more onerous duty, for example, in the case of a village hall where the trustees are required to call a public meeting before disposing of property
      • where the disposal involves only a small part of the land and will not affect the ability to carry out the purposes of the charity

 

E4.3 Form of notice

The Charities Act does not set out when or where the notice should be published nor dictate the contents of the notice. These are matters for the trustees to decide but we may give the following advice if asked.

 

Timing of the notice

The trustees can give notice as soon as they have formed a general intention to dispose of the designated land and how they have decided to market it. In any case they must comply with this requirement at the time of entering into an agreement for the disposal (sale, lease or other disposal). If the trustees fail to do this the disposal will be invalid.

 

Publication of the notice

As many people as possible in the beneficial area should have the opportunity to see the notice, bearing in mind the cost of advertising, especially beneficiaries who may be affected by the disposal.

 

In the case of a local charity it will usually be acceptable for the trustees to put up a notice on the property itself and perhaps to insert a notice in the local paper. For a charity that operates nationally it might be better to place an advert in a national newspaper and possibly also in some specialised publication relevant to the charity’s work.

 

However the trustees decide to publish the notice, they should be able to justify their decisions if challenged.

 

Content of the notice

The minimum we would recommend the trustees to include in the notice is:

  • a statement that it is a notice for the purposes of s121(2) of the Charities Act 2011
  • the name of the charity
  • the date by which representations are required – to comply with s121(2)(a) this must be not less than one month from the date of the notice
  • the full address or description of the land
  • the nature of the disposal (freehold sale, lease for x years, etc)
  • the manner in which the trustees propose to market the property
  • the full postal and/or email address to which representations should be sent

Again, there is no legal requirement about the content of the notice and it is up to the trustees to decide what to include.

Top of page 

E5 The ‘saving provisions’ of s122

If the trustees have not obtained an Order from us when they should have done or have not met one or more of the requirements of either s119 or s120, there may be doubts about the validity of the transaction. In such cases the receiving party may be able to rely on the ‘saving clauses’ in s122(5) and (6).

 

Where the trustees should have complied with the requirements of s117(1) or (2) then when a person, whether under the disposition or afterwards, in good faith acquires an interest in the land for money or money’s worth, this disposition is valid whether or not:

  • the disposition has been sanctioned by an Order from us or the court
  • the charity trustees have power under the trusts of the charity to make the disposal and have complied with section 117 to 121 as far as these are applicable to it
Where the charity trustees are in breach of their trustee duties, they may still be liable to the charity for any loss caused by that breach whether or not the purchaser has acquired good title.

Q & A

 

F1 Do trustees always need our consent to dispose of their charity’s land?

No – if the disposal is not to a connected person and the trustees comply with certain requirements, they can dispose of their charity’s land without our consent. There are other times when trustees don’t need to come to us.

A disposal to a connected person will always need our consent unless an exception applies. A disposal of designated land that will not be replaced is likely to mean we have to make a Scheme to alter the objects of the charity as without such land the charity is unlikely to be able to carry out its purposes.

See section B2 and section E2.1

Top of page 

F2 What is charity land?

See section E1.1

Top of page 

F3 What do we mean by a disposal of land?

See section E1.2

Top of page

F4 Who is a connected person? And what about a child, spouse or partner?

The full definition of who is a connected person in the context of disposal of charity land is set out in s118 of the Charities Act

For a brief outline see section E1.3

The meanings of some of the terms used are set out in ss350 to 352 of the Charities Act

Top of page

F5 When do we need to give our consent to a disposal of charity land?

See section B3

Top of page 

F6 What information do we need to see when deciding whether or not to give our consent to a connected person disposal?

See section B4.3

Top of page 

F7 What requirements must trustees comply with when disposing of land without our consent?

See sections C2 and D2 of Sales, leases, transfers or mortgages: What trustees need to know about disposing of charity land (CC28)

Top of page 

F8 Do trustees need our consent to dispose of designated land?

In some circumstances – see section B5

Top of page

Model text

NOTE: This model text is for guidance only, the technical sufficiency of transfer documents is a matter for the trustees and their legal advisers. We can send this model wording to trustees as long as we add this proviso.

G1 Model form of lease where land is vested in the Official Custodian

1. Parties

The Official Custodian for Charities (no further description or address is required)

The charity trustees (this should include all the trustees who should be named and described as individuals)

The lessee

2. Recitals

That the land is vested in the Official Custodian for Charities in trust for the charity

That it is intended that the lease shall be executed by two (or whatever the number may be) of the charity trustees under an authority given in pursuance of s.333 of the Charities Act 2011

Statements must also be included to comply with the provisions of s.122 of the Charities Act 2011; further information is available in the Land Registry’s Practice Guide 14 ­ Charities

3. Demise

The charity trustees in the name and on behalf of the Official Custodian for Charities hereby demise, etc.

4. Trustees’ Certification

The trustees of the charity must make certification in the document – see the Land Registry’s Practice Guide mentioned above

5. Lessee’s Covenants

Lessee to covenant with the charity trustees, and as a separate covenant, with the Official Custodian for Charities

6. Lessor’s Covenants

By the charity trustees only, and not by the Official Custodian

7. Declaration of Value

It is hereby certified by the parties hereto other than the Official Custodian for Charities that etc.

8. Testimonium

This deed is executed by (here the names of the charity trustees who are to execute should be named) in pursuance of s.333 of the Charities Act 2011 and in the name and on the behalf of the Official Custodian for Charities and also of the charity trustees.

9. Signatories

SIGNED AND DELIVERED

By the said .............

In the presence of:………………..

SIGNED AND DELIVERED

By the said ..........

In the presence of:……………

G2 Model form of conveyance/transfer where land is vested in the Official Custodian

1. Parties

The Official Custodian for Charities (no further description of address is required)

The charity trustees (this should include all the trustees who should be named and described as individuals)

The Purchaser

2. Recitals

That the land is vested in the Official Custodian for Charities in trust for the charity.

That it is intended that the transfer shall be executed by two [or whatever the number may be] of the charity trustees under an authority given in pursuance of s.333 of the Charities Act 2011

Statements must also be included to comply with the provisions of s.122 of the Charities Act 2011; further information is available in the Land Registry’s Practice Guide 14 – Charities.

3. [Date]

In consideration of .............pounds (£........) the receipt of which is hereby acknowledged we (set out the names of all the charity trustees) whose address for service is........... the charity trustees of the charity known as (set out the full name of the charity) in the name and on the behalf of the Official Custodian for Charities hereby transfer and as charity trustees hereby transfer and confirm to (set out the name of the transferee here) of, etc. ....... the land comprised in the title above­mentioned.

4. Trustees Certification

The trustees of the charity must also make certification in the document – see the Land Registry’s Practice Guide mentioned above.

5. Declaration of Value

It is hereby certified by the parties hereto other than the Official Custodian for Charities that etc. ............

6. Testimonium

This deed is executed by (here the names of the charity trustees who are to execute should be named) in pursuance of s.333 of the Charities Act 2011 and in the name and on behalf of the Official Custodian for charities and also of the charity trustees.

7. Signatories

SIGNED AND DELIVERED

By the said ..................

In the presence of:

SIGNED AND DELIVERED

By the said .................

In the presence of: