Charities must comply with certain specific provisions of legislation when making disposals of property. The main rules have been dealt with under the Charities Act 2011, but this has now been adapted by the provisions of the Charities Act 2022.
Stages of the Charities Act 2022
The Charities Act 2022 is being introduced in stages with some changes already in place under Stage 1 (which came to force on 31 Oct 2022), whilst Stage 2 changes were implemented on 14 June 2023 and some are still anticipated in Stage 3 which is expected at the end of 2023.
The Charities Act 2022 covers many different aspects of charity matters but in this article, we focus specifically on what it means in relation to how charities need to comply with disposal of charity property. The main ways charities tend to deal with property is either, to lease a property as tenants, to be a landlord or they may own the property. It is important to be clear on what classes as a disposal as the definition of ‘disposals’ under the legislation covers a wide range of dispositions of property (some of which are not as obvious as others) including:
- Sales
- Leases for over 7 years
- Leases for less than 7 years where a fine or premium is paid
- Granting or releasing a right, easement or restrictive covenant
- Granting or releasing a wayleave
- Surrendering a lease
- Anything else that is not a short lease (with no fine or premium) or a mortgage or a charge
Charities cannot dispose of an interest in property, unless they are exempt from the requirement (in some specific circumstances), without obtaining either a court order or an approval from the Charities Commission or by obtaining written advice in relation to the disposition. Charities commonly obtain written advice as this is usually the quickest and easiest way to deal with the Charities Act requirements on dispositions.
The charity still needs to obtain advice and report on the disposal; however, this advice and report can now be provided by a wider pool of professionals not just surveyors. Requirements in relation to advertising the disposal have also been lessened.
The following are the key changes to the rules on disposals from the 2022 Act
Designated advisor report
Written advice previously had to be obtained from a RICS qualified surveyor. Now, rather than obtain a surveyors report charities can now obtain a ‘designated adviser report’ from a designated adviser acting exclusively for the charity. The 2022 Act has widened the pool of who can supply the reports making it easier to obtain one. Charities can now appoint: Fellows of the Central Association of Agricultural Valuers, Members of NAEA Propertymark, fellows and professionals of RICS (qualified surveyors) and also qualified charity trustees, officers and employees. The final part is of particular importance as the designated adviser reports can now be provided ‘in house’ if the charity has a qualified person within the charity with sufficient professional indemnity insurance .
It has always been a requirement to have a report to assist the trustees with deciding whether the terms of the disposal are the best that can be reasonably obtained by the charity. The recent changes adapt the nature of what must be included within these reports. Reports need to cover advice on broad categories including:
- The value of land
- How the value could be increased for example remedial repairs
- Approach to marketing and sale of the land
- Anything else of relevance and self-certification by the advisor
Advertising the disposal
The act also removes the automatic statutory requirement to advertise a proposed disposal as advised in the surveyor’s report. Charities no longer have a statutory obligation to follow a surveyor’s advice on advertising the disposal. Charities should consider the advice on advertising but no longer have a statutory obligation to follow it.
Connected persons
Presently, any transfer of charitable land to an individual with close affiliations, such as a charity trustee, a land donor to the charity, a charity officer, agent, or employee, or a spouse or relative of any of these individuals, as well as certain business associates, necessitates formal approval from either the court or the Charity Commission.
However, with the new regulations, an assured shorthold tenancy granted for less than 12 months can be granted to an employee of the charity without them being deemed a connected person and so can proceed without the court's or commission's approval.
What is anticipated in Stage 3 towards the end of 2023?
The final stage will change the statements that are required in certain documents when carrying out the disposal. These will now have to be included in a contract for the disposition or mortgage as well as in the document which effects the disposal such as a lease, transfer deed or mortgage.
These changes should lessen the cost and complexity of the process. However, they must be clearly understood and complied with. Each charity’s circumstances, and criteria for compliance or exemption will differ and specialist advice should be sought to ensure that the requirements of the act are correctly followed. This will affect charities operating in all sectors, including those in the supported living sector who frequently need advice in relation to disposals. Contact us today to see how we can help.
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