Charities Act 2022: Changes to the Law on Dispositions of Charity Property

This article covers the changes made in the Charities Act 2022 to the restrictions on dispositions of charity property in Part 7 Charities Act 2011.

New charity legislation is rare, so the charity sector has eagerly awaited implementation of the Charities Act 2022. The article assumes that the reader has some knowledge of the current regime restricting dispositions of charity property and focuses only on the changes being made.

Many in the charity sector hoped for greater reform, but in our opinion the changes are relatively conservative and relatively technical, so probably of more interest to lawyers and other property professionals than the average lay charity trustee.

Changes taking effect on 14 June 2023

Jointly owned properties

The law is clarified so the s.117 restriction on dispositions of charity property only apply to property held solely by or for one charity; i.e. jointly owned property or property held as a trustee for another is not restricted by S117. This is mainly relevant where charities have received legacies of a part share in a property.

Connected persons transactions

The law requiring an express Charity Commission authority for disposals to employees who are “connected persons” is relaxed slightly so that tenancies by charities to employees of a dwelling as a home for a fixed or periodic term of 1 year or less do not require a specific Charity Commission consent. The other “usual” restrictions and rules on charity dispositions still apply to such transactions.

Qualified Surveyor’s Reports

The commonly used self-certification route using a “qualified surveyor” (rather than seeking a Court or Charity Commission authority) to authorise a charity property disposal is amended with 3 key changes. Qualified Surveyor’s Reports (QSRs) will become known as Designated Adviser’s Reports (DARs).

1)      The legal requirement for the charity to advertise in accordance with the QSR advice has been removed. This was causing practical problems and widespread technical non-compliance as frequently QSRs are not received until after advertising the property.

2)      The content required by the report will change and be simplified. This is summarised in the annex to this briefing below. Hopefully the changes will allow more flexibility and proportionality on transactions. There is a new requirement for advisers to advise on any “steps which could be taken to enhance that value”, which we think is a positive move to protect the best interests of charities. However, with more discretion, more responsibility passes to the trustees and their advisers. There is a risk that the simplification could in fact put charities at risk of missing opportunities that might exist from more creative property deals rather than (for example) a straightforward sale as is. More onus is put on the adviser, so a good adviser is more important than ever.

You may be aware that some charities have come under fire for seeking to maximise the best price or the charity’s own interests (in line with the general trustee duty to act in the best interests of the charity) above wider community or social considerations or a particular beneficiary or tenant of the charity. These changes do not help charities (or advisers) know the extent of their legal duties or how to balance charity law interests with other economic social and environmental issues. The new provisions might arguably require advisers to cover such matters, but the requirement and indeed where the balance lies is far from clear.

3)      Instead of a “qualified surveyor” the new term is “designated adviser”. As well as RICS surveyors separate Regulations allow fellows of the National Association of Estate Agents and The Central Association of Agricultural Valuers (including charity trustees, officers and employees with such qualifications) permission to provide the advice where necessary. 

In addition, a new provision increases clarity that trustees, officers and employees of charities can give the advice required on a disposition or financial advice on grant of a mortgage if they are suitable to do so.

Hopefully this should allow more flexibility and proportionality on transactions, but again with more discretion, more responsibility passes to the trustees in picking an appropriate adviser, in particular for higher value or complex transactions.

The rules on granting leases up to 7 years are unchanged.

Changes expected by the end of 2023 (date not announced)

Sales by liquidators

The law will be changed so the s.117 restriction on dispositions of charity property and s.124 restriction on the grant of mortgages by charities doesn’t apply to sales or mortgages of charity property by a liquidator, administrator, receiver etc.

Charity-to-charity transactions

There are to be amendments to the exception from the general s117 restriction on certain charity to charity transactions. The key changes are that the exception only applies if a transferor charity is transferring to another charity and: a) the transferor charity is not aiming to achieve the best price obtainable or b) the transferor charity is not making a social investment. The changes have removed the explicit reference to the transfer having to be authorised by the trusts of the transferor charity. The logic of that change is that general charity trust and company law requires such authorisation anyway. While that is true, we believe the change risks mistakes arising as some charities will inadvertently forget that the fundamental principles apply or mistakenly interpret this as an authority to make a transfer to another charity even if the trusts do not permit it (which it is not!).

Protection of purchasers

The current law might enable a charity to invalidate sales or mortgages by failing to comply with its own legal obligations. This was unfair to a purchaser or mortgagee acting in good faith and the amendments will protect a purchaser for value acting in good faith and mortgagees or future purchasers from mortgagees. There is still the possibility that a transfer for nil value could be invalidated by the transferring charity’s own non-compliance.

Universities and Colleges

Dispositions and mortgages under the Universities and College Estates Act 1925 are no longer excepted from s.117 and s124. This is only relevant to i) Oxford, Cambridge and Durham universities and their colleges and halls and ii) Eton and Winchester Colleges. As part of wider changes to remove the outmoded Universities and College Estates Act 1925 such dispositions are no longer excepted so s.117 and s.124 may apply more frequently.

Annex – requirements of Designated Adviser Reports

1. The report must deal with the following matters—

(a)     the value of the relevant land;

(b)     any steps which could be taken to enhance that value;

(c)     whether and, if so, how the relevant land should be marketed;

(d)     anything else which could be done to ensure that the terms on which the disposition is made are the best that can reasonably be obtained for the charity; and

(e)     any other matters which the adviser believes should be drawn to the attention of the charity trustees.

(2)     The report must also include a statement by the adviser that—

(a)     the adviser has ability in, and experience of, the valuation of land of the particular kind, and in the particular area, in question; and

(b)     the adviser has no interest which conflicts, or would appear to conflict, with that of the charity.