General legal issues

Valuation on acquiring property

Valuation on acquiring property

Organisations should consider the question of whether or not to take valuation advice when buying freeholds or taking leases to ensure that they are getting an appropriate deal.

  • Charity trustees have to act in a prudent and businesslike manner, as they do in all their property dealings.  [Common law duties of charity trustees]
  • There are no statutory legal requirements to take valuation advice before acquiring property, as there is with some disposals.  The decision whether or not to take valuation advice, and for the charity to bear the costs of that advice,  is ultimately that of the charity trustees. [Charities Act when valuation procedures apply]
  • In most cases of land purchase, it would be unthinkable for a charity not to take valuation advice on all aspects of the transaction.  The position is not so with leases at lower rents or leases of part with capped service charges.
  • Valuation advice may also not be sought where land is transferred for a nominal price or significantly below market value, and broadly the comments relating to lease negotiation will apply to those circumstances.
  • In most cases of land purchase it would be unthinkable for a charity not to take valuation advice.
  • On one interpretation of the Charities Act 2011 there is a requirement to transact on the best financial terms reasonably possible.
  • This is not the case with acquisitions.  Indeed it is in principle acceptable for charities and their trustees to pay more than the maximum value advised by their surveyor.  It would be sensible for charity trustees to recognise the disparity between the sale price and valuation in the minutes of the meeting in which they decided to proceed with the transaction, and to record the reasons for the purchase on those terms.
  • Charity Commission guidance does suggest that trustees should ensure that “the price is fair, or even discounted, compared with similar properties on the market”.  They do not give any legal authority for this and it is open to question as an absolute principle, even if it might suffice as a general rule (or statement of the obvious).   The trustees may consider it necessary to pay over the market rate for a property to achieve the charity’s objectives in accordance with its mission or business plan.