Acquisitions, disposals and mortgages of charity land

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The Law Commission (LC) recently closed a consultation called Technical Issues in Charity Law . We take a brief look at some of the LC’s early recommendations regarding the rather complex and onerous restrictions on charity trustees disposing of, or granting mortgages over, charity land.

The Law Commission (LC) recently closed a consultation called Technical Issues in Charity Law. We take a brief look at some of the LC’s early recommendations regarding the rather complex and onerous restrictions on charity trustees disposing of, or granting mortgages over, charity land.

For these purposes, “charity land” means any land in England and Wales held by, or in trust for, a charity. A “disposal” refers to a conveyance, transfer, lease or land that is otherwise disposed of. This is wide and examples include a sale, a lease over charity land, the grant, transfer or surrender of an easement, a release of a restrictive covenant, an exchange of land or a surrender.

Disposals of charity land to a connected person (part 7 of the Charities Act 2011)

Currently, an order of the Charity Commission or the court needs to be obtained for a disposition, other than a mortgage, to a connected person. A “connected person” is someone who falls within a statutory list (S.118(2) of the Charities Act 2011) at the time of the disposition or any contract for the disposition. A charity trustee, a donor of land to a charity or an officer, agent or employee of a charity are just some examples.

  • The LC’s provisional proposal is that the provisions relating to these types of disposition should be repealed. The LC believes that the general law policing disposals to connected persons, including mortgages, is sufficient. While such dispositions are generally prohibited, the Charity Commission can authorise the transaction. The LC also suspects that most trustees are steered by the Charity Commission’s guidance on this.

Disposals to non-connected persons

At present an order of the Charity Commission or the court is still required, unless the trustees have taken advice. The rationale behind this is to protect charities’ assets.

  • While the LC agrees with the rationale, it believes that a more flexible approach is needed for the regulation of disposals of charity land (including mortgages). The LC provisionally proposes that the general prohibition on trustees disposing of charity land should be removed. Instead there should be a duty on trustees, before disposing of charity land, to obtain and consider advice from a suitably experienced person. However, this duty should not apply if the trustees reasonably believe that it is unnecessary. As part of this, the Charity Commission’s guidance should be revised to help trustees determine what they should look at in deciding whether to take advice, from whom and what that advice should consider. The LC also said that “disposition” should cover the transfer or creation of any interest in charity land, including the grant of a mortgage.

Disposal of designated land

There are additional requirements where land is held by or on trust for a charity and “the trusts on which it is held stipulate that it is to be used for the purposes, or any particular purposes, of the charity”. This is to ensure that local public opinion is taken into account by trustees before they dispose of such land.

  • While the LC expects trustees to consider public consultation, they should not be legally obliged to do so in all cases. The LC provisionally proposes that the requirements relating to advertising intended disposals of designated land and considering any responses should be abolished.

Exempt charities

Disposals of land held by or in trust for an exempt charity (defined under section 22 and schedule 3 of the Charities Act 2011) fall outside of the above requirements.

  • The LC is considering whether, following the consultation, the above expert advice requirements that the LC proposes for dispositions by non-exempt charities, should be extended to exempt charities.

Acquisition of land by a charity

The current obligations apply to disposals and mortgages of charity land, but not to the acquisition of land by charities.

  • Following the consultation, the LC is considering whether the new expert advice requirements that apply to disposals should also apply to charities acquiring land.

Non-compliance

Where the above part 7 requirements apply and the trustees proceed without complying, the transaction will be void. There is statutory protection for purchasers of land from charities from this risk.

  • The LC provisionally proposes that if the current (part 7) requirements are not amended/replaced, meaning that non-compliance renders a transaction void, then a purchaser should be protected by a certificate, deemed conclusively to be correct, in the sale contract stating that the statutory requirements have been complied with.

The LC’s final report, following the receipt of consultees’ views, will be interesting. However, don’t expect any imminent changes as a final report (with recommendations) and a draft bill will not be produced until 2016.

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