Why the law on charity land is changing

Rebecca Cooney looks at the legal changes on charity land sale that are in the pipeline, hears from legal experts what the consequences of them might be, and highlights recent cases where charity land has caused disputes or led to court cases

Putney Common: charitable land
Putney Common: charitable land

The laws on charity land have been only partly relaxed since 1855, when concerns about trustees conducting land transactions that were not in their charity’s interests prompted an act of parliament that prohibited such transactions without the consent of parliament, the courts or the Charity Commissioners.

Now, however, there is a growing feeling that, in a world where charities can make a range of different investments, many of the rules about land transactions are archaic. The Law Commission’s consultation on charity law, which closed in July with results due to be published during 2016, concluded that the requirements of the current law were "complex, costly and inconsistent".

Jonathan Fewster, a partner at the solicitors Bircham Dyson Bell, agrees: "It’s no different from dealing with the sale of a financial instrument or investment, which can be just as complex and can carry a value as high as land, but attract nowhere near the same level of scrutiny," he says. "And transactions like this rely in any case on the fiduciary duty of trustees to act in the best interests of the charity for those sorts of transactions."

The existing law stipulates, first, that trustees must check whether their governing documents say they are free to dispose of the land – for example, a charity set up to commemorate a famous historical figure and based at the house where they lived might find it is restricted from selling the property because this would conflict with its charitable objects.

Next, trustees of a charity that wants to sell or transfer freehold land, dispose of a lease it has held for more than seven years, or grant rights or easements over a piece of land, must get a written report from a qualified surveyor and publicise their plans to the community if advised to do so. And if the trustees can’t fulfil these criteria, they need to seek a special order from the Charity Commission.

The Law Commission consultation proposed relaxing this stipulation: instead of being required to get the advice of a qualified solicitor, trustees should "obtain and consider advice" from someone "they reasonably believe has the ability and experience to provide them with advice"; but they should not have to if they do not consider it necessary. It also proposed that trustees should no longer have to consult the community, although they should consider whether it is appropriate to do so.

If the Law Commission’s recommendations were enacted, Fewster says, things would be far less prescriptive. "It would make them a bit more flexible, particularly for lower-value transactions that are getting caught up in the current rules," he says. "But it would put more onus on trustees to show they have taken the right steps and considered the right sort of information in the absence of a professional surveyor’s report."

In major transactions, he says, he would still recommend getting a surveyor’s report. "But in the grey area of mid-value transactions, trustees would have to have an appropriate paper trail to show they’d taken the right value calls," he says.

Because the rules about the disposal of land also apply to long-term leases, a charity that decides it no longer needs to keep renting premises, but has several years remaining on the lease, currently has to jump through the same hoops as if it owned the property.

‘Fiddly process’

"It’s quite a fiddly process at the moment," says Fewster. "If you’re looking at surrendering a lease, which is actually a liability if you’re paying rent on something you don’t need any more, you still have to go through the same process to justify your actions, and while you’re doing that you’re continuing to pay rent and incur liabilities."

He says relaxing the disposal laws would eliminate the lease problem as well. But the key factor throughout would remain the same as now – the trustees must be able to demonstrate that they have got the best deal possible on behalf of their charity.

Another anomaly in the existing law is that charity trustees are required to seek an order from the Charity Commission if they wish to sell or transfer land to a related party, which means not only the usual suspects – partners, siblings or children – but also, curiously, the charity’s own trading subsidiary.

Fewster says it’s nonsense: "A trading subsidiary is wholly owned by the charity – it doesn’t make sense for it to fall within this definition of connected parties when the charity is the only member of the subsidiary and they are as one in terms of control."

Fortunately, the Law Commission is proposing to do away with the requirement on related parties as part of its general underlying drive to reduce red tape in charity land law. But there is one area where it is proposing to increase restrictions.

All the requirements mentioned so far currently apply to selling land, but not to buying it – even though just as much damage could be done to a charity’s aims and finances by buying land at the wrong price as by selling it at the wrong price. The commission has therefore proposed to apply the requirement to consider obtaining advice to buying as well as to selling. This is not expected to be seen as a major burden to most charities.

Trust agreement

The National Trust, one of the largest char-ity landowners, grants so many leases that the current requirement to give public notice is a challenge. But Tim Butler, one of the charity’s solicitors, says its has already struck an agreement with the Charity Commission for the rule to be waived for shorter leases where there will be no impact on public enjoyment.

He says that extending the requirement to consider gaining advice to purchases as well as sales will not be a problem for the charity. "To be honest, we’re already doing that," he says. "The important thing for us is to have a fairly structured approach, both to acquisition and disposal – one that is very methodical. Not cumbersome, but methodical. And that matches what’s being suggested by the Law Commission."

The most important thing, he says, is that there continues to be clarity – both in the rules, so that trustees know what they are expected to do, and in the duties of trustees, so they can show they’ve acted appropriately.

"If the regime is relaxed, it will be really important that there is suitable guidance that helps trustees spot issues of the kind that might currently be picked up by the obligation to get professional advice," says Butler. "It’s important people are told – really have it laid on the line for them – about the importance of seeking professional advice.

"And what I would absolutely support is that, if a piece of land is integral to why the charity was set up, there has to be a mechanism to make sure the charity thinks really carefully about it before it disposes of it – it’s not the sort of decision you can take lightly."

CASE STUDY: The curious case of Bath Recreation Ground

Bath and North East Somerset Council got a nasty shock in 2002 when a judge ruled that Bath Recreation Ground, which it had been given when the company running it went bust in 1956, was technically land held in charitable trust. The Bath Recreation Ground Trust, a charity, was duly formed.

But before the discovery of this charitable status, the council had erected a sports centre on the site, which sits alongside the historic city centre, and allowed Bath Rugby Club to build a 13,500-seater stadium there. Both actions could now be considered a breach of trust, particularly given that Bath became a professional team in 1996.

Michael King, charities consultant at the solicitors Stone King, which acted for the club, says: "The situation isn’t anyone’s fault – they just didn’t realise it was a charity. Historically, I don’t think even the Charity Commission thought it was."

Bath Rec

The realisation that the rec was charitable land came at a time when the rugby club was planning to expand its stadium to seat 17,000, which would also mean an increase in the five-figure rent it pays to the council.

So in 2013 the council went to the commission and asked it to approve a scheme to allow the charitable land occupied by the club, plus the extra land required for the expansion – in total, less than half of the total area of the rec – to be leased to the club.

But opposition had been building up in the meantime. "Some residents were vehemently opposed to the whole idea of a commercial organisation being on charitable land, and they formed the Friends of Bath Recreation Ground," says King.

The requested scheme was made by the commission, but the friends objected and the case went to the First-tier Tribunal (Charity), which ruled the rec was specie land. This means that its purpose cannot be altered from the charitable one it was originally given, which in this case was outdoor recreation by the people of Bath. The tribunal said any new stadium should be built on the footprint of the old one, preventing expansion.

However, on appeal by the trustees and the commission, the Upper Tribunal overturned the ruling in 2015, opening the way for the trustees to continue to let part of the rec for commercial purposes. A proposal in the original scheme to swap the charitable land occupied by the club for a training ground the club owns two miles outside the city also remains a possibility.

The First-tier Tribunal has now reconsidered and agreed the scheme and sent it back to the commission – and, despite some complaints from the local group, it appears the way could now be clear. "It’s looking hopeful that we’ve come to the end of litigation, and it’s likely a new scheme will be produced soon," says King (who declares his interest as a Bath season ticket holder).

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