General legal issues

Charities Act when valuation procedures apply

Charities Act when valuation procedures apply

Charities intending to deal with their property should consider whether the statutory requirements under sections 117 to 121 of the Charities Act 2011 may apply.

  • There is a general duty on charity trustees (including directors of charitable companies) to acting  in a prudent and business-like manner in dealings with the charity’s property in the interests of achieving the charity’s objectives.  [Common Law duties of charity trustees]
  • Sections 117 to 121 of the Charities Act 2011 codifies this and adds particular obligations with respect to those charities regulated by the Charity Commission, principally those registered by the Commission
  • The valuation procedures potentially apply to: transfers or conveyances of land; leases of land; surrenders of leases; grants of easements (rights of light, way and access); transfers of mortgages of which the charity has the benefit; or dispositions of “equitable” interests in land (such as a share of jointly owned property)
  • However, the valuation procedures  don’t apply to the following which are not technically disposals of land: a contractual licence to occupy or use property; the exercise of a tenant’s break right under a lease; the variation of a lease (not being an extension of the term; the vesting of land in a new trustee; a rent review under a lease; or a tenancy at will.
  • The provisions do not apply to dispositions by exempt charities; mortgages which are subject to separate provisions; or disposals of land outside England and Wales.
  • Where there is a disposal of land, the provisions do not apply to dispositions where there is a specific statutory power or Charity Commission scheme authorising the disposition; any disposition for which the authorisation or consent of the Secretary of State is required under the Universities and College Estates Act 1925; dispositions to another charity at a price other than the best price reasonably obtainable where the disposing charity has power to do so; where the charity is, pursuant to its powers, granting a lease to a beneficiary for the purposes of the charity at a rent other than the best rent reasonably obtainable
  • The following transactions will always require Charity Commission consent unless within the exceptions above:  dispositions where the trustees are not satisfied that the transaction is on the best terms;  and dispositions to certain ‘connected persons’.
    Connected persons include: a charity trustee or holding trustee of the charity; a donor of any land to the charity; a child, parent, grandchild, grandparent, brother or sister of any such trustee or donor; an officer, agent or employee of the charity; an officer, agent or employee of the charity; the spouse (including a “common law” spouse) or civil partner (including people living as they were) of any person falling within any of the above; a person carrying on business in partnership with any of the above; and a body corporate in which any connected person falling within any of the above has a substantial interest, or two or more such persons, taken together, have a substantial interest as defined in the section, broadly equating to one fifth of equity share or voting power
  • Trading subsidiaries are commonly connected persons because of the rules relating to companies and will therefore usually need an order from the Charity Commission.
    Note also the inclusion of a donor to the charity as a connected person.  This can have significance in the case of community land-holding and regeneration charities that may have had the benefit of gratuitous asset transfer from their local authority and continue to enter into land transactions of various types with the local authority thereafter.