10 July 2023

Charities Act 2022 reforms: Amendments to charity property provisions

Charities must comply with certain statutory requirements before they dispose of or mortgage property. On 14 June the second group of reforms under the Charities Act 2022 were brought into force by the Charities Act 2022 (Commencement No. 2 and Saving provisions) Regulations 2023. These reforms bring in some important amendments to the provisions dealing with charity property and aim to simplify some of the statutory requirements.

These regulations bring into force section 17 and sections 19-22 of the Charities Act 2022.

Scope of Part 7 of the Charities Act 2011 (section 17)

It is Part 7 (which covers sections 117-122) of the 2011 Act that imposes the restrictions on dispositions and mortgaging of land. The aim is to protect charities from imprudent decisions of trustees by ensuring that they obtain best terms when they dispose of or mortgage property. Section 17 of the 2022 Act amends section 117 of the 2011 Act to confirm that the restrictions apply where the whole of the land which is being disposed of is held either:

(a) by a charity solely for its own benefit and not as nominee or in trust for another person (where it is a corporate charity e.g. charitable company or CIO) or

(b) in trust solely for that charity (where it is an unincorporated charity).

The explanatory notes to the 2022 Act explain that, as amended, the restrictions apply where:

(a) a trustee holds property on bare trust for a single charity;

(b) property is left to a charity in a will and the executor has appropriated the land to the charity or

Those explanatory notes also outline that the restrictions do not apply where:

(a) a charity is one of several beneficial joint tenants of property and the trustee of the property is disposing of the entirety of it;

(b) a charity is one of several tenants in common of the property and the trustee of the property is disposing of the entirety of the land;

(c) property which is being disposed of is left, and has been appropriated or assented, to multiple beneficiaries under a will, one or more of which is a charity or

(d) a trustee holds property on trust for multiple beneficiaries, one or more of which is a charity.

Advertising and report requirements for dispositions (sections 19 and 20)

Section 19 of the 2022 Act has removed the automatic statutory requirement for trustees to advertise a proposed disposition in the manner advised in a surveyor’s report. The charity must consider any advice on advertising that is given by the surveyor or other designated adviser (see below), but there is no longer a statutory requirement to follow that advice.

Trustees therefore have discretion to decide how to advertise a proposed disposal of property. It has also replaced the requirement for a surveyor’s report to “contain such information” as may be prescribed by regulations made by the Secretary of State with a general requirement that these reports “deal with such matters” as may be prescribed by regulations.

Section 20 of the 2022 Act substitutes the 2011 Act reference to “qualified surveyor” with “designated adviser”. This is to implement the Law Commission’s recommendation to expand the category of advisers who can provide advice to charities and reflects the fact that these advisers can include non- members of the RICS (see below).

The Charities (Dispositions of Land: Designated Advisers and Reports) Regulations 2023 (the “Designated Advisers Regulations”) also came into force on 14 June and revoke the Charities (Qualified Surveyors’ Reports) Regulations 1992. The 2023 regulations replace the 1992 ones with the following broad categories of advice which must be included in a designated adviser’s report:

(a) the value of the property;

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

(d) anything else which could be done to ensure that the terms of the disposition are the best that can be obtained and

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

The Designated Adviser Regulations are therefore more flexible, less onerous requirements that will give designated advisers more discretion as to what information will best assist trustees in any particular disposal.

The Designated Adviser Regulations also allow the adviser to self-certify that they:

(a) have the ability in, and experience of, the valuation of property of the particular area, in question and

(b) do not have any interest that conflicts, or would appear to conflict, with that of the charity.

As noted above, the term “qualified surveyor” has been replaced with “designated adviser”. The 2023 regulations expand the category of those who can be a “designated adviser” and give advice to trustees on disposals of their property. These now include (as well as fellows and professional associates of the RICS):

(a) Fellows of the Central Association of Agricultural Valuers and

(b) Members (at fellow grade) of NAEA Propertymark (professional membership scheme for estate agents previously called the National Association of Estate Agents).

As a result, trustees now have more choice as to who they can take advice from in relation to property disposals.

Advice from trustees, officers and employees (section 21)

Section 21(2) of the 2022 Act enables qualified trustees, officers, and employees (who meet the requirements of a “designated adviser”) to provide a report or advice on:

(a) disposal;

(b) the specific provisions for leases for which are for 7 years or less and

and including where they do so in the course of their employment by the charity.

Residential tenancies granted to employees (section 22)

Section 22 of the 2022 Act has amended the 2011 Act definition of “connected person” to exclude employees of a charity where the disposal is the grant of a short, fixed-term or periodic tenancy (of one year or less) to use as their home. Trustees therefore still need to obtain advice on the grant of those leases but are no longer required to obtain consent from the Charity Commission (as was required under the 2011 Act).

Charity Commission Guidance

The Charity Commission has now also updated its guidance note (CC28) on selling, leasing or otherwise disposing of property.

As well as changes required by the 2022 Act, this now clarifies what is meant by “disposal”:

(a) selling or transferring land;

(b) granting, transferring or surrendering a lease of charity property;

(d) granting or releasing an easement, or a right of way over property and

(e) granting or releasing a wayleave to allow access to facilities on the property.

The Charity Commission has also updated its guidance note (CC33) on acquiring property. Section 6 of this continues to “strongly recommend” that trustees proposing to buy land (whether for investment purposes or for use by the charity) obtain and consider a report from a designated adviser acting solely for them, applying the rules that apply on a land disposal.

However, it now says that there may be occasions when trustees decide that it is not in the best interests of their charity to obtain such a report on a proposed land purchase, giving examples of when this might apply (e.g. the charity already has sufficient in-house expertise which would make additional advice unnecessary; or the trustees are intending to purchase land in excess of market value in pursuit of their charitable purposes such that the additional cost is justified because of the value of the land to their charity).

Trustees who decide not to obtain a report before purchasing land are advised to ensure that they have taken all relevant matters into consideration and paid careful attention to whether the purchase is in the best interests of the charity, having followed the principles in Charity Commission: It’s your decision: charity trustees and decision making.

Finally, CC33 now also includes a new Section 10 on “Who should hold title” to charity property. This confirms that property must either be registered in the charity’s or an individual’s name with HM Land Registry. If the charity is a company or Charitable Incorporated Organisation (CIO), title can be registered in the name of the charity. If it isn’t a company or CIO, individuals should be appointed to hold the property on behalf of the charity (this is usually some or all the trustees). This may lead to extra work and expense when trustees change, because of the need to re-register the property in the names of the new trustees.

To avoid this issue, charities can transfer their property to the Official Custodian. This is a free service the Charity Commission provides which holds property on behalf of charities. This means the property would be held in the same name regardless of who the trustees are. More information about that service can be found here: Commission’s Official Custodian service

Implementation of further reforms

Implementation of section 18 (Exceptions to restrictions on dispositions or mortgages of charity land) and section 23 (Information to be included in certain instruments) of the 2022 Act has been deferred from this second group of reforms to the third phase of implementation (by the end of 2023). This allows further time for DCMS to work with HM Land Registry on making consequential amendments as a result of these sections.

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