“The Charities Act 2022 is designed to make a positive, practical difference to charities and where possible, to make things easier for trustees.” This quote from Aarti Thakor, the director of legal and accounting services at the Charity Commission, neatly sums up the rationale of the 2022 Act, which received royal assent on 24 February 2022.
The Act has been long in the planning. In 2014, the Law Commission began a project which drew on responses from charity professionals, practitioners and academics and ultimately delivered a 2017 report, Technical Issues in Charity Law. It acknowledged valuable resources are wasted on the administration of charities because of unduly complicated legislation and set out a series of recommendations for change.
Phased approach
The 2022 Act, which amends the Charities Act 2011, is coming into force in three stages. This incremental approach allows time for the introduction of those changes that require secondary legislation. It affords the Charity Commission, the regulator of registered charities, time to introduce revised guidance on the new legislation and to update its systems as necessary. It also gives charities and others affected by the Act the opportunity to prepare for any changes that will affect them.
The first set of provisions came into force on 31 October 2022 but did not deal with property matters. The second tranche, expected to come into force in Spring 2023, will introduce changes relating to the disposal of charity land.
The final round of changes is expected to be introduced in Autumn 2023. The Act applies across England and Wales.
Charity land
Ownership of land in England and Wales by charitable organisations is extensive and multi-faceted. Some of the largest landowners, by acre, are not-for-profit bodies. Many of our most treasured historic buildings are owned by charities, on a freehold or long lease basis. Hundreds of not-for-profit building preservation trusts own historic buildings across England and Wales. And, in the area of social housing, large stocks of housing land are owned and let by social landlords registered as charities.
Smaller charities are more likely to own property for operational purposes in order to help fulfil and deliver their charitable purpose. Charity shops, held under leases, are an ever-growing presence on our high streets, increasingly viewed as a socially responsible way to shop, as well as providing inexpensive clothes and furniture at a time where the cost of living is escalating.
Regardless of the size of the land holding or the size of a transaction, any disposals of land held by charities in England and Wales will be affected by the 2022 Act. The changes will also be of relevance to those acquiring land from charities.
Current regime for disposals
The current statutory regime applying to the disposal of charity land is set out in sections 117 to 121 of the 2011 Act. It applies to all non-exempt charities, which means to all registered charities, and to land held by or in trust for more than one charity, for example where a deceased person’s estate includes land and has been left to a number of charities.
Before any disposal of land by a non-exempt charity, the trustees must take advice in prescribed terms from a qualified surveyor. This obligation applies to any disposal of charity land, including any surrender of a lease and sale of land except for the grant of a lease of seven years or less (unless granted wholly or partly in consideration of a fine).
Under section 119 of the 2011 Act, a report must be prepared by a surveyor who is suitably qualified, independent and objective. This is generally known as a “section 119 report” or “qualified surveyor’s report”. It is often considered unsuitable for the selling agent to provide this report because of the requirement for impartiality and so a separate surveyor is usually instructed. The report needs to be comprehensive (there are nine mandatory advice points to be covered) and, in particular, advise on the value of the property, and the manner of disposal of the property so the charity’s trustees can satisfy themselves that the terms on which it is disposed of are the best that can reasonably be obtained.
Where appropriate, the report should include consideration, for example, of whether the land should be divided for the purposes of the disposition, or whether the proposed disposition should be delayed.
A less prescriptive regime applies where a charity grants a lease of seven years or less. This requires the trustees to obtain and consider advice about the proposed disposal from a person who, in the reasonable belief of the charity trustees, has the requisite ability and practical experience to provide them with competent advice on the disposal.
Aside from the obligation for registered charities to secure advice, all charities – including exempt charities, such as registered providers of social housing – are required to include statements in contracts and transfers for the disposal of their land that the land is held by or in trust for them, whether they are exempt and, if not, whether the land is land to which the restrictions on disposition apply.
The 2011 Act also requires charity trustees, in their individual capacity, to certify compliance with the requirements of the 2011 Act in any transfer, lease or other instrument effecting a disposal of charity land. This can cause delays, especially within larger charities that do not have the power to delegate the necessary certification on behalf of the trustees to others (or which have not delegated any available power).
A further, practical challenge under the current regime is the cost associated with appointing an independent surveyor to provide the mandatory report. This can be a frustration for charities where the points that need to be addressed may not be relevant and when a lighter-touch assessment may be all that is needed. It can also be an unwelcome complication in the sale process for a prospective commercial buyer.
The new regime
The changes to be introduced in Spring 2023 will introduce a proportionality to the statutory requirements for charity land disposals. The changes will:
- Allow charities to take advice on land disposals from a larger pool of people with requisite expertise. Section 119 reports will be produced by “designated advisers” – a category that will include qualified surveyors but also fellows of the National Association of Estate Agents and of the Central Association of Agricultural Valuers, and could include a charity’s trustees, officers, and employees (who will be able provide the more light-touch advice on the grant by a charity of a lease of seven years or less).
While this introduces welcome flexibility into the system, charities may be reluctant to place reliance on their own people, particularly when dealing with important and/or sizeable disposals. If they were to do so, then their charity would probably want to check that its indemnity insurance would cover such advice if it was later called into question;
- Simplify the rules about the nature of the advice, so that it will need to cover relevant issues only and be reflective of the value of the transaction, with the focus being on whether the value of the relevant land could be enhanced in order to maximise the sale proceeds for charitable use and, if so, how that could be done, in particular removing the requirement to advertise the property;
- Remove the need for charity trustees to certify compliance with the charity land disposal regime and, instead, require that contracts for sale, leases and other dispositions of land contain statements of compliance, as well as conveyances and transfers. This is intended to provide greater protection for buyers in good faith at an earlier stage of any transaction.
- Mean the new regime will only apply to land held solely by or in trust for a single charity.
What is likely to change?
From early 2023, charities will have more options to seek advice regarding their land assets in advance of any disposal. They may still want to commission a full section 119 report even when they are no longer under any legal obligation to do so, but where circumstances do not warrant a “full” report then charities will have the option to adopt a lighter touch.
Certificates provided by charity trustees in transfers and leases will be replaced by statements of compliance provided on behalf of the charity.
The key principle remains the same, for charities to take steps to maximise the value of the land of which they dispose. The welcome news is that, with effect from spring 2023, charities will not have to jump through so many hoops to uphold that principle.
Anna Lowe is a legal director and Robert Nieri is a principal associate at Shoosmiths LLP
