Beware of the law when selling or leasing charity property

We’ve written before about the complexities of charity law: it’s one of our favourite soapbox topics. No more so than when it comes to charities selling or leasing out their property.

In recent years we have increasingly worked with small charities (like village halls and youth clubs) that need to sell, or lease out their property to generate income or fund a new project.

Often they come to us without knowing that a charity cannot just sell or lease out its property: there are rules about what must be done before such as decision can be made.

Sometimes they come to us late in their project having realised that it’s more complicated than they thought and needing help to find solutions. In a few cases there are alternative approaches, but they end up being more complicated and costly (e.g. taking out a loan) or the project has to be delayed because of the regulatory hurdles that must be cleared first.

The Charity Commission’s guidance on this topic is, for the most part, remarkably clear but there are several areas of complexity.

The basic premise is that a charity cannot sell, lease or otherwise dispose of land or the buildings it owns or has rights over without first leaping several pesky regulatory hurdles. The fundamental principle is that and such “disposal” must be in the best interest of the charity (i.e. its current a future beneficiaries).

For a sale or lease of more that 7 years the charity must get a report from a ‘designated advisor’ - someone properly qualified to advise on the terms of the disposal and the trustees must be satisfied that those terms are the best the charity can reasonably obtain. If not then the consent of the Charity Commission is needed before the charity can proceed with the disposal (and that can take 6 months or more to get and is not usually simple).

For lease of les than 7 years, a report from a ‘competent person’ is needed and the trustee must still be satisfied that the terms are the best the charity can reasonably obtain.

The consent of the Commission is always needed if either the disposal is to a person ‘connected’ to the charity and is almost always needed for a disposal of ‘designated land’ (i.e. land that was given to the charity for a specific purpose (such as permanent endowment). The exceptions for designated land are fairly vague and legal advice should always be obtained before a charity decides it does not need consent to dispose.

Usually legal advice is needed to determine of the land is ‘designated land’. If it is then, apart from from lease of up to 2 years, the charity also has to give public notice and take into account any representations for the public about the proposed disposal.

There are exceptions to these regulatory requirements, such as leasing to a beneficiary to further the charity’s purpose or disposing of property to another charity with the same or similar purposes. it is usually best to get legal advice before deciding these exceptions apply.

The moral of the story is that charity trustee need to know that they cannot simply sell or lease out the charity’s property and should get advice on the regulatory requirements before doing so. In our view these are necessarily complicated requirements but they are the law and are unlikely to change.

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Want to find out more? Contact us at julian@almondtreeconsulting.co.uk to discuss your organisation’s needs.