Property pitfalls for charities

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By Geldards at WCVA's Charity Law Conference 2013.

By Geldards at WCVA's Charity Law Conference 2013.

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  • 1. Property Pitfalls for CharitiesTuesday 21 May 2013Harriet Morgan, Senior Associate
  • 2. 3 common pitfalls• Who needs to do what?• Restrictions on a charity’s ability to dispose ofland• Practical pitfalls
  • 3. Who needs to do what? – Case Study 1
  • 4. Decision making• The board of Charity Trustees make the decisionson behalf of the Charity• The Charity Trustees are responsible for makingsure that the Charity is run properly• The risks for Charity Trustees in not doing so are:• The transaction may be void or voidable• Breach of statutory duty
  • 5. Parties to the lease• Both the Company and the Charity Trustees needto be a party to the lease where the Charity isincorporated• The Charity Trustees must give a certificate underthe Charities Act 2011 that they have the powerto effect the lease and to confirm compliancewith the Act
  • 6. How many need to sign?• The Company signs through 2 directors, adirector and secretary or 1 director and a witness• It is vital that the Charity Trustees also sign thedocument• Not all of the Charity Trustees have to sign thedocument if authorisation has been given unders333 Charities Act 2011
  • 7. S333(1)• Charity trustees may, subject to the trusts of thecharity, confer on any two or more of their body -• a general authority, or• an authority limited in such manner as the charitytrustees think fit,to execute in the names and on behalf of the charitytrustees documents for giving effect to transactionto which the charity trustees are a party
  • 8. • Must be in writing or a resolution of the board;• Can be in respect of any trustees or namedtrustees only;• Can have restrictions attached to it;• Continues until it is revokedThe authority under s333 (1)
  • 9. What if the charity is unincorporated• Charities that are not incorporated cannot holdland in its own name• Property holding function can therefore bedivested to a third party such as the OfficialCustodian, a Holding Trustee or a CustodianTrustee• That third party may need to be a party to thedocument and to sign it
  • 10. Risks• If the correct people are not party to thedocument or have not signed the documentproperly, the transaction could be invalid
  • 11. Restrictions on dispositions bycharities – Case Study 2• There are restrictions on a Charities’ ability todispose of land• The risk of not complying with these restrictionsare that:• The transaction could be invalid• Trustees could face action for breach of statutoryduty and or reputational damage• The relevant law is s117-123 Charities Act 2011
  • 12. Ss117-123 Charities Act 2011• Non compliance a big problem• Obligations can be missed altogether• Can increase costs and delay completion of atransaction
  • 13. S117 Charities Act 2011This section prevents charity land being disposed ofby a non-exempt charity without an order of thecourt or an order of the Charity Commission unless:•the charity has followed the statutory procedurelaid out at s119 and 120; or•it is a disposal between charities; or•it is a disposal made by a charity pursuant to astatutory authority or order of the court; or•the disposal is a lease to a beneficiary
  • 14. The statutory procedure• Trustees to obtain a report on the terms of thedisposition from either:• a surveyor; or• if the disposal is a lease for 7 years or less with nopremium a person reasonably believed to haverequisite ability and practical experience toprovide competent advice on the disposition• Trustees to consider the report• Statements and certificates in the lease ortransfer
  • 15. Why is a surveyor’s report needed?• To protect the Charity Trustees• To prevent Charity Trustees rushing intotransactions• To consider what is in the best interests of theCharity• The certificate gives comfort to the other party tothe transaction
  • 16. Saving clauses s122(6)• In favour of a person who (whether under thedisposition or afterwards) in good faith acquiresan interest in the land for money or money’sworth the disposition is valid whether or not –a) the disposition has been sanctioned by an order ofthe court or of the Commission, orb)The charity trustees have power under the trusts ofthe charity to effect the disposition and havecomplied with s 117-121 so far as applicable to it
  • 17. What are the risks of non compliance?• The Transaction may be invalid• The Charity Commission can• Make the Trustees start the process again;• Ratify the unsustainable disposition;• Make an order authorising the execution ofconfirmatory disposal documents; or• Require the Trustees to take or the CharityCommission can take necessary steps to re-vestthe Property in the charity or its trustees
  • 18. Disposals between charities• No need to follow the statutory procedure if adisposal between charities other than for thebest price• Must be authorised by the Charity Trustees• No surveyor’s report is needed• A certificate from the Trustees in the document isrequired
  • 19. Disposal by lease for 7 years or less• Do have to follow statutory procedure on thegrant of a lease for 7 years or less with nopremium• No surveyor’s report required• Advice required from competent person• Can save time and money• Certificate from Charity Trustees is required
  • 20. Do all charities have to comply?• Not exempt charities – i.e. those prevented fromregistering as a charity• Examples include charitable housing associationsand higher education establishments
  • 21. Acquisitions• No restrictions on acquisitions• Best practice would be to obtain advice that anacquisition is in the best interests of the Charity
  • 22. Practical Pitfalls
  • 23. Practical Pitfalls – Case Study 3• Break clauses• Security of tenure• Business rates and Stamp Duty Land Tax
  • 24. Break Clauses• Get the dates and address for service of thenotice right• Plan ahead if conditions are attached to the rightto break• Beware as a tenant about conditions attached toa break right and resist where possible
  • 25. Landlord and Tenant Act 1954• As a landlord consider carefully before agreeing toexclude security of tenure – only 7 statutory groundson which a landlord can oppose a tenant’s statutoryright to renew a lease• As a tenant, consider if willing to agree to give upstatutory right to renew the lease at the end of theterm• Statutory procedure, serving of notice by thelandlord on the tenant and a declaration or statutorydeclaration completed by the tenant
  • 26. Business rates and SDLT• Mandatory relief of 80% and discretionary relief of afurther 20% when property occupied by a charity that iswholly or mainly used for charitable purposes• An empty property owned by a charity can be “zerorated” if it appears that when the property is re-occupied it will be wholly or mainly used for charitablepurposes;• SDLT relief for charities when holding land for owncharitable purposes or as an investment where theprofits are applied for the charitable purposes of the
  • 27. Cardiff Derby NottinghamThank You
  • 28. Contact DetailsHarriet MorganDD : 029 2039 1781harriet.morgan@geldards.com