Charities Act 2022: Changes to rules governing charity property disposal implemented

On 7 March 2024, the third tranche of changes implemented by the Charities Act 2022 (the “Act”) came into force, making further reforms to the rules governing disposal of charity property. These changes are designed to streamline and modernise the process of disposing of charity property whilst still safeguarding the interests of charitable organisations.

Charity land disposal - A new exemption

A new exception to the general restrictions on disposal of charity land has been introduced. Under this amendment, the restrictions on dispositions of charity land will now exclude dispositions made by liquidators, receivers, mortgagees or administrators. This means that such individuals will no longer be required to obtain an order from the Charity Commission or procure a Charities Act report (i.e. a prescribed report from a Designated Advisor under the  Act) when disposing of charity-owned property.

The rationale behind this change lies in the recognition of the existing obligations and duties that these individuals are already under; insolvency practitioners aim is to maximise value for creditors, meaning that they have an existing duty to obtain a reasonable price on any disposition. This therefore aligns with the purpose of the restrictions imposed on charity trustees, who are similarly tasked with ensuring that disposals of charity land yield optimal value.

Furthermore, the decision-making authority regarding the disposal of charity land shifts away from charity trustees when insolvency practitioners are appointed; requiring charity trustees to comply with the requirements on disposition in the Act, at a time when those trustees are not in control of the charity, serves little purpose. These changes address certain practical problems with the previous rules.

Charity Act 2022 – new regime enhancements

Enhanced buyer protection

Under the old rules, any transfer, lease (or other charity land disposition) was required to contain certain statements and a certificate confirming compliance with the rules relating to dispositions under the Act.

Under the new regime, these statements have been slightly modified and there is now no requirement for the trustees to give a certificate (practically removing the need for the charity trustees themselves to join in and execute the transfer (or other disposition)). The key change however is that the new statements are required not just in the transfer (or other disposition), but in the contract for sale itself (or, where the disposition is not a sale, the contract agreeing to enter into the disposition).

This shift aims to provide greater protection to buyers acting in good faith; it enables them to have confidence that the transaction in question has been entered into in accordance with charity law. This is particularly crucial in cases where charity trustees may have entered into a contract for sale without complying with the  Act, as charity trustees will no longer be able to rely on such failures to avoid completing the sale. Such innocent third parties will therefore be able to rely on the statements given by the charity in the contract.

Enhanced accountability

Another important  change to disposals,  is the narrowing of circumstances in which the charity-to-charity exception can be relied upon. Under the old rules, charities were entitled to dispose of property to another charity (including at less than best price) without complying with the restrictions on disposition in the Act, if authorised by the disposing charity’s trusts.

Under the new rules, this exception will not apply if the disposition is made to another charity with a view to achieving the best price that can reasonably be obtained, or the disposition is a social investment – i.e. if the price being paid is a motivating factor (even if a partial one in the case of a social investment), the exception will not apply. In this way, the charity-to-charity exception will only apply, for example, where one charity is disposing of property to another charity with similar purposes at a nominal sum, where the effect of the transaction is simply to change the trustees of the land; in these circumstances, the charitable purposes for which the land is held remains the same and the price paid is not a motivating factor.

This is in contrast to a transaction where one charity is disposing of property at market value to another, where the requirements on dispositions in the  Act will apply. Equally, even if the sale is not made at market value but price is still a motivating fact (for example where a disposal is made at less than market value to a charity with similar purposes), such disposals will also be subject to the requirements on dispositions in the  Act.

These changes ensure that charities obtain appropriate advice on matters such as price, in accordance with the requirements of the  Act, in circumstances where the price paid is a motivating factor in the trustees’ decision to make the disposal.

Finally, the requirement that, for this exception to apply, the disposition must be authorised by the disposing charity’s trusts, has also been removed. This does not change the fact, if a disposal is not permitted by the trusts of the disposing charity, the charity cannot make that disposal.  This change simply clarifies that there is no requirement for an express provision in the disposing charity’s trusts authorising the disposal.

Conclusion

This third round of changes brought about by the Act represents a further step towards enhancing efficiency, transparency and accountability in charity land disposals. These are welcome changes and will help to modernise the process.

For the changes to the Charities Act implemented in 2023, please see our article here.

Watch our Charity Property Update webinar here.