Trustees have my sympathy, because the process of mortgaging charity property is considerably more complicated, and the need to involve the Charity Commission may have discouraged some boards entirely.
The cornerstone of an effective strategy is a clear understanding of how value locked away in a charity's assets can contribute to the pursuit of its objects. However, there has been a change in the unwieldy process that curtailed trustees' ability to balance funding streams and reserves with flexible debt finance secured against property.
The Charities Act 1993 contains a general prohibition on trustees mortgaging land held by or in trust for a charity without the authority of the courts or the Charity Commission. The only circumstance in which prior consent was not required was when granting a mortgage as security for the repayment of a specific loan. In that instance, the long-term interests of a charity's beneficiaries were safeguarded by the obligation on trustees to obtain and consider advice from an appropriately qualified adviser on the necessity of the loan to the trustees' strategy, the reasonableness of the lending terms and the charity's ability to repay it.
Section 27 of the Charities Act 2006, which came into force on 27 February, significantly relaxed the general prohibition by broadening the circumstances in which prior consent is no longer a prerequisite. Trustees can now enter into any mortgage, whether for the repayment of a specific loan, the repayment of a grant or the proposed discharge of any other obligation. In addition, the consent requirement has fallen away for mortgages that are intended to secure current and future loans from the same lender.
The obligation on trustees to obtain proper advice before entering into a mortgage remains, although the scope of the advice is reduced when the mortgage secures the discharge of any liability other than the repayment of a loan or a grant. Here, the relevant matter is whether it is reasonable for the charity trustees to undertake to discharge the obligation, having regard to the charity's purposes.
It's not scintillating stuff, but it is a potentially useful regulatory change.