Disposing of charity land: Implications of the Charities Act 2022

Georgia Whitfield, an Associate in our Commercial Property team at Hay & Kilner, explains how charities must navigate a complex landscape of regulations, particularly when it comes to the disposal of property.

Charities must navigate a complex landscape of regulations, particularly when it comes to the disposal of property. The primary regulations were originally outlined in the Charities Act 2011 but have recently been modified by the Charities Act 2022.

Overview of charity property disposals

Charities generally deal with property in three primary capacities: as tenants leasing properties, as landlords renting out their own properties, or as owners of real estate. Understanding the term "disposals" and its definition in the relevant legislation is important, as it encompasses a wide array of property transactions, including:

1. Sales of property
2. Leases – a distinction is made between leases exceeding seven years in duration, and leases under seven years if a fine or premium is involved
3. Granting or releasing rights, easements, or restrictive covenants
4. Granting or releasing a wayleave
5. Surrendering a lease
6. Any other disposition that is not classified as a short lease (without fine or premium), mortgage, or charge.

It’s important to note that Charities are generally restricted from disposing of property interests unless they fit specific exemptions. To proceed with property disposals, charities must:

• obtain a court order;
• seek approval from the Charity Commission; or
• acquire written advice concerning the disposal.

Obtaining written advice tends to be the most efficient method for meeting the requirements of the Charities Act.

Effect of Charities Act 2022

Advisor reports
One of the significant changes implemented by the Charities Act 2022 is the expansion of the pool of professionals authorised to provide the charities with the necessary advice to be able to dispose of property.

Previously, only qualified surveyors accredited by the Royal Institution of Chartered Surveyors (RICS) could offer this service. Now, a broader range of professionals, including Fellows of the Central Association of Agricultural Valuers, members of NAEA Propertymark, RICS fellows and professionals are eligible to prepare a “designated adviser report” for the charity. Notably, charities may now utilise 'in-house' designated adviser reports as the Act specifies that trustees and employees can now give the advice if suitably qualified.

Under the former regulations, the reports were required to assist trustees in determining whether the terms of disposal were the best achievable for the charity. The recent changes have further refined the content expected in these reports. They now need to encompass advice on various aspects including land valuation, methods to increase value (e.g. remedial repairs), marketing and sale approaches, and any other relevant information certified by the adviser.

Advertising requirements
Another notable change brought about by the Charities Act 2022 is the removal of the automatic requirement for charities to advertise proposed disposals as per the surveyor's report.

While previously charities were legally obligated to follow this advice, the new regulations provide greater flexibility. Although it remains advisable to consider advertising guidance contained in the designated advisor report, charities are no longer required to comply with this requirement.

Tenancies to connected parties
The updated regulations introduce specific exemptions for transactions involving charitable land transfers to individuals closely affiliated with the charity.

Under previous legislation, transfers involving charitable land transfers to individuals closely affiliated with the charity, such as trustees, land donors, officers, agents, employees, and their spouses or relatives required formal authorisation from the Court or Charity Commission. Under the new rules, an assured shorthold tenancy of less than 12 months can be granted to a charity employee without the need for court or commission approval, even if they are categorised as a "connected person."

Contracts with Charities
An important change for prospective purchasers of charity land is the new requirement for charities to include in the contract for sale (as distinct from the document which actually effects the sale) a statement confirming that the Charities Act provisions have been complied with, and that a contract for sale should be enforceable by a purchaser if: (a) the statement has been given in the contract, or (b) the statement has not been given but the purchaser has acted in good faith.

In both respects this is already the case in relation to the conveyance itself, so this change effectively extends the buyer’s protection back to the point of contracting for sale. This closes the loophole whereby under the previous legislation it was possible for a transaction to be frustrated due to a charity’s failure to comply with the Charities Act.

Ensuring compliance and flexibility

It is important for charities to fully comprehend and follow the requirements of the Charities Act 2022. Even though the changes are widely seen to provide flexibility for charities when disposing of property, the less prescriptive approach introduced by the Act may make the rules more difficult to navigate for less experienced trustees.

If you require assistance or further information in respect of dealing with charity property, please do not hesitate to contact Georgia Whitfield or one of the team.