In this blog we look at two of the changes to the rules on disposals of charity land which could save charities time and money when disposing of property – the extension of the list of professionals who can advise on disposals of charity land and simplification of the requirements for the advice that must be obtained.
If you are interested in the changes to the law relating charity legacies which include property please take a look at our charity legacies blog found here.
What do you need to know?
Part 7 of the Charities Act 2011 imposes restrictions on disposals of charity land which are intended to put safeguards in place to ensure that charities dispose of their property on the best terms that can reasonably be obtained for the charity. The rules were working well for those charities looking for a clear framework of guidance to inform and provide protection in relation to their decision to dispose of charity property, but have been criticised as being too prescriptive by other charities engaging in more complex property deals or indeed charities dealing with small transactions for which highly detailed advice may be disproportionate to the cost and complexity of the disposal.
The proposed changes to Part 7 of the Charities Act 2011 which are set out in the Charities Act 2022 are intended to provide more flexibility for charities, recognising that the rules apply to a vast range of different property transactions.
Who can provide advice?
Part 7 of the Charities Act 2011 previously required charity trustees to obtain advice on the terms of any disposal of charity land (other than a lease for a term of less than seven years or a mortgage) from a qualified surveyor who is a member of the Royal Institution of Chartered Surveyors. Under the new provisions brought in by the Charities Act 2022 charity trustees will be able to obtain this advice from a wider category of "designated advisors" which will include fellows of both The National Association of Estate Agents (PropertyMark), of which 25% of estate agents are a member, and The Central Association of Agricultural Valuers as well as qualified charity trustees, officers and employees.
This wider pool of advisers from which a charity can obtain advice allows charity trustees to exercise discretion in choosing the most suitable and cost-effective advisor in the context of the transaction. However, along with this greater flexibility comes an added responsibility for charity trustees, who have to bear the following things in mind when assessing who will be the most appropriate advisor in the circumstances:
- is the advisor adequately qualified to provide the advice?
- is the advisor a member of the appropriate professional regulator?
- are there any conflicts involved?
- do the cost savings of using a charity trustee/employee to provide the advice outweigh the potential risks to the charity?
does the advisor have professional indemnity insurance?
What must the advice cover?
Part 7 of the Charities Act 2011 previously provided that the advice had to contain such information and deal with such matters as prescribed by The Charities (Qualified Surveyors' Report) Regulations 1992. The new provisions simplify this requirement by replacing those regulations with The Charities (Dispositions of Land: Designated Advisers and Reports) Regulations 2023, which require a designated advisor to provide advice concerning:
- what sum to expect for the land/whether the offer represents market value for the land;
- whether (and if so how) the value of the land could be enhanced;
- marketing of the land;
- anything else which could be done to ensure that the terms of the transaction are the best that can reasonably be obtained for the charity;
- any other matters that the adviser believes should be raised with the charity's trustees.
These simplified requirements should make it easier for designated advisors to tailor their advice to the transaction in question, but there is a risk that without such detailed guidance, less experienced or less qualified advisors could provide less rigorous advice.
What action should you take now and what has been delayed?
The Charities Act 2022 is being implemented in stages between now and at the end of 2023. The provisions mentioned above in this blog are now in force, so charities dealing with disposals of property should familiarise themselves with the changes to the advice requirements and consider whether they could be used to the charity's advantage. Charities disposing of property on a regular basis should consider whether alternative advisors may be better placed than RICS qualified surveyors to provide the charity with advice.
However, certain of the property provisions have now been put back until not later than 31 December 2023. This includes the changes to the statements and certificates to be included in property contracts and deeds. This is delay has been explained as to allow time to liaise with the Land Registry on the form of the new statements. The delayed provisions also include the changes around the exceptions to the provisions on disposing of and mortgaging charity land for liquidators and certain others.
What action do you need to factor into future plans and transitional provisions?
Charities now need to factor in an enhanced decision-making process in order to ensure that adequate consideration is given to the appointment of a designated advisor on a case by case basis in the context of each disposal of charity property. The new Regulations do set out transitional provisions that will apply if charities have already obtained an old form qualified surveyors report but have not exchanged contracts yet. Provided that a charity has instructed its adviser before 14 June 2023 to prepare a report for the purposes of complying with section 119(1) of the 2011 Act, the old 1992 Regulations will apply to the report even if the disposal takes place after the new Regulations have come into force, providing some certainty for those currently involved in transactions and concerned about having to obtain two reports.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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