Charities Act 2022: Changes to the rules governing disposal of property
The rules governing disposal of charity property changed on 14 June 2023, when the latest set of provisions of the Charites Act 2022 came into force.
Charities that are non-exempt exempt (a non-exempt charity is one governed by the Charity Commission) cannot dispose of an interest in property unless (a) they obtain an Order from the Charity Commission or from the Court (expensive and time consuming), (b) the disposition falls within one of the specified exceptions in the Charities Act (very rare, as these exceptions are narrow) or (c) they obtain written advice on the disposition, in the form required by section 119 of the Charities Act 2011 (often called a “Charities Act Report”) or 120 of the Charities Act 2011 (which is less stringent than a formal Charities Act Report but only applies to the grant of leases which are for 7 years or less). Option (c) is most-commonly adopted by charity trustees but is only available where the disposition is not to a connected person.
From 14 June 2023, the category of persons who may provide a Charities Act Report has been widened, from “qualified surveyor” (which meant a RICS qualified surveyor) to “designated advisor” including fellows of both the National Association of Estate Agents and the Central Association of Agricultural Valuers. In addition, appropriately qualified charity trustees, officers and employees will also be able to provide the report. Whilst this provides welcome flexibility to charity trustees (particularly on smaller scale transactions where a report from a RICS surveyor would be disproportionate), trustees do need to ensure that anyone providing the advice has appropriate professional indemnity insurance in place and that there are no conflicts of interests.
The required contents of the Charities Act Report have also been significantly simplified. Gone are the requirements to include measurement of rooms in the relevant building (something which was usually immaterial to the transaction at hand). Under the new rules, the designated advisor will instead focus on the value of the land and how it can be enhanced, marketed and anything else that could be done to secure the best possible terms for the disposition.
The definition of “connected persons” has been amended so that an employee of a charity, granted a short, fixed-term or periodic tenancy (of one year or less) to use a property as their home, will not be considered a connected person. Prior to 14 June 2023, such tenancies would have required an Order from the Commission or the Court, as is the case with all disposals to connected persons. Charity trustees must still obtain advice on any proposed tenancy from someone they reasonably believe has the requisite ability and practical experience to provide them with that advice.
The restrictions on disposition now do not apply where land is held by or in trust for multiple beneficiaries. This means that where a trustee holds the land on trust for multiple beneficiaries, only one of which is a charity, the restrictions will not bite (as opposed to the scenario where land is held beneficially solely for a single charity).
The changes in the Charities Act 2022 enact many of the recommendations made by the Law Commission in its 2017 report (Technical Issues in Charity Law). The new rules provide welcome flexibility to trustees, particularly when it comes to choosing the advisor to provide a Charities Act Report and the costs incurred in obtaining that Report. Additional changes to the rules governing charity property disposals are due to come into force at the end of 2023, and we will of course provide further detail of those at the time.
Watch our Charity Property Update webinar here.