Property and Charities Act 2022 reforms
March 7th 2024 saw the bringing into force of the final provisions of the Charities Act 2022 (ChA 2022) affecting charity property transactions. These are part of the third group of reforms under the ChA 2022 (the other reforms having been brought into force on 31 October 2022 and 14 June 2023). For the real estate implications of the earlier reforms please see our previous article on the subject (available here).
These final property provisions have been delayed from the second to the third tranche of reforms to allow for further work with HM Land Registry on some consequential amendments required by these provisions.
These provisions amend sections 117(3) and 124 of the Charities Act 2011 (ChA 2011), dealing with the exceptions to the restrictions on dispositions and mortgages that are otherwise imposed on charities.
Section 117(1) ChA 2011 provides that no property can be transferred, leased, or otherwise disposed of without an order of the court or the Charity Commission. However, s117(1) does not apply if trustees comply with s119 ChA 2011 (or s120 in the case of leases for 7 years or less) or s117(3) applies.
Section 119 provides an exception where trustees obtain a designated advisor’s report, and conclude that the disposal is in the best interests of the charity. Section 117(3) though provides exceptions which, if they apply, mean that the restrictions on disposal do not apply. The new provisions of the ChA 2022 add a new exception for disposals and mortgages by liquidators, provisional liquidators, receivers, mortgagees or administrators, meaning that disposals or mortgages by these parties will not be caught by the restriction on dispositions.
The new provisions also reformulate the exception in s117(3)(c), which provides an exception for disposals to another charity. The amended provision confirms that the exception applies only to disposals to another charity that are solely intended to further the transferring charity’s purposes. The exception will therefore not apply if the disposition is a transaction intended to achieve the best price that can reasonably be obtained for the transferring charity; or a disposition that is a social investment.
The section 117(3) exception was previously only available where the disposal was authorised by the trusts of the charity. That requirement has been removed to make it clear that it is not necessary for the charity’s governing document to specifically authorise the disposal for the section 117(3) exception to apply. However, this does not allow a disposal to another charity that is not permitted by the charity’s governing document, eg. a sale at less than best value to another charity whose purposes are incompatible with those of the transferring charity.
The new provisions also amend sections 122 and 125 ChA 2011 to simplify the wording required in certificates and statements to be made in documents effecting property transactions with charities. The revised wording has little effect on how the provisions actually operate, but is a simpler form.
These changes also require relevant statements to be made in contracts for disposals of charity Land, as well as in the document that actually effected the disposal (as was previously the case).
Finally, the new provisions amend the purchaser and mortgagee protection rules. These provide that a purchaser from a charity can rely on the statements in the contract to the effect that the charity has complied with section 117 and has the power to dispose of the property. They also provide that where no statement has been included in the document then the party who has entered into the contract in good faith can also enforce it as though it had been included. These changes mean that a charity can no longer rely on its own failure to comply with the ChA 2011 requirements for charity land transactions to try to avoid a contract.
As a result of the changes to statements in property transaction documents, the standard form restriction to be entered on the title to charity property at HM Land Registry has also now been amended to bring it into line with the current law.
It should be noted that the restrictions on disposal imposed by section 117 do not apply to exempt charities, who are instead subject to the controls placed on them by their establishing documents.