Charities and land

When dealing with land owned by a charity, the trustees have higher statutory duties above that of other owners.  Broadly speaking, these higher duties apply whenever the trustees decide to buy, sell, lease or mortgage charitable land.

The trustees must obtain either authority from the Charity Commission or, in the majority of cases, a report from a suitably qualified surveyor to ensure that the proposed terms are the best that can be achieved for the charity.  The exact statutory requirements will vary depending on what transaction is proposed.  For example, if the trustees propose to sell charity land they will also need to consider the surveyor’s advice on how the property is marketed to achieve the best price.

It is important that charity trustees take legal advice on their position when dealing with charity land in order to avoid public criticism and potentially personal liability for failing to safeguard its assets.  Additionally, not complying with the statutory requirements can delay or even prevent completion of a transaction.

In David Roberts Art Foundation Limited v Riedweg [2019] EWHC 1358 charity trustees intended to sell a London freehold property for £8m.  They correctly instructed surveyors to prepare a report on the sale but the report did not deal with how the property should be marketed.  There were also failures to follow the correct legal formalities in the sale contract.  The buyer paid a deposit at exchange of contracts but was unable to raise the balance of the purchase money at completion.  The trustees retained the deposit and sold the property to a different purchaser for £5.5m.  The original purchaser brought legal action against the trustees for return of her deposit on the basis the contract with the trustees was void for failure to comply with the formalities.

The trustees applied to Court to rectify the omissions in the contract without a full trial by means of summary judgment.  It was held that despite the failure of the trustees to comply fully with the statutory requirements, the contract was not necessarily rendered void but that a trial is necessary before a decision can be reached.  The cost and delay of this litigation could have been avoided had the trustees met their statutory obligations in the first place.

A further example of charity trustees failing to comply with their statutory duties involved The Spiritualist Association of Great Britain Limited.  In 2017 the Charity Commission published its report into the sale of the charity’s leasehold interest in a London property which it sold for £6m only for the purchaser to sell again immediately to a further purchaser for £21m.

The report followed a four year investigation into the sale by the Charity Commission which found that the trustees had mismanaged the charity’s property by failing to take proper legal advice in relation to the sale and to comply with their statutory duties.  By taking and heeding legal advice the trustees would have avoided the cost and reputational damage of the investigation, as well as potentially securing a better price for the charity’s property.

Michelmores has specialist property and charity lawyers who can advise trustees on how to comply with their duties and avoid such problems.