May 28, 2021

Why charities now need to be extra careful when selling land

Posted in Real Estate

The pandemic has played havoc with the fundraising predictions of charities, acting as a reminder of allowing for the unknown unknowns when considering borrowing money. One potential source of recouping that loss of income is selling land for development.

Charities and land transactions: a welcome reform?

Charities owning land have increasingly become involved in development agreements over the past few years. It represents a substantial growth in asset value and potentially creates a large amount of cash to spend on the charity’s purposes or to re-invest in an asset that produces a greater income.

The reforms announced in the Queen’s speech are designed to make property transactions and the use of funds for the purposes of the charity easier than before. There is, however, a catch when it comes to trustees’ responsibilities. Whilst charities may welcome the announcement, trustees - especially of smaller charities - may be less enthusiastic. The consequence is that even greater responsibility to act correctly will fall on the shoulders of the trustees.

What’s the change for trustees?

The current process involves obtaining a Qualified Surveyor’s Report or notifying or obtaining the consent of the Charity Commission. It may delay transactions and add to costs, but the upside is that trustees know that if they follow the correct procedure and the advice in the Qualified Surveyor’s Report, it is hard for them to be criticised.

Under the proposed changes, trustees will have greater discretion. However, and quite rightly, with that comes the obligation to exercise that discretion wisely. Whether or not trustees decide to continue to obtain a Qualified Surveyor’s Report from a surveyor who is a member of the Royal Institution of Chartered Surveyors, they will need to show and justify why they chose the person they did. This will be even more the case where they decide not to take advice at all.

In a similar way, the simplifying of restrictions on dealings with a charity’s permanent endowment and borrowing from permanent endowment funds again are welcome but add to the responsibilities of trustees.

Implications for charities

The headline message is that trustees will need to act more carefully when it comes to property transactions and dealing with permanent endowment funds.

Larger charities are likely to have better resources and be able to navigate the new regime more easily, providing training for their trustees. For smaller charities, trustees may need to obtain more external advice than before these changes if they are to be able to demonstrate that their actions were in the best interests of the charity and that they followed the correct steps.

What does this mean for developers?

Developers dealing with charities will also have earlier protection from trustees not properly following the required procedure to enter into a land transaction. Under the proposed reforms, they will be able to enforce completion of a transaction once contracts have been exchanged, so long as on the face to the contract the trustees have followed the correct procedure. Also these reforms should mean that developers will be able to conclude transactions more quickly and therefore dealing with charities will be more attractive than at present.

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