Charities and real estate – what do you need to know?
Charities might wish to acquire or sell property for a number of reasons; to occupy, as offices or shops, or for investment purposes in the furtherance of its charitable aims. When entering into a real estate transaction the charity trustees will need to ensure they comply with the terms of the charity’s constitution as well as statutory requirements set out in the Charities Act 2011.
Here are a few key points to consider…
1. What type of charity are you?
The vast majority of charities in England and Wales will fall within the category of “Non-Exempt Charities”. These charities will usually be required to register with the Charity Commission (although there in an exception for small charities with a gross annual income below £5,000) and are subject to restrictions on disposing, acquiring and mortgaging land. “Exempt Charities” are not subject to the same rules: this category includes specified institutions of national importance such as museums and higher education institutions (i.e. the Natural History Museum and the University of Oxford– although note that the colleges are not).
2. What does a non-exempt charity need to think about when dealing with property?
Two of the most common types of transactions entered into by non-exempt charities which are caught by the restrictions of the Charities Act 2011 are:
- The sale of freehold or leasehold land; and
- The grant of a lease (where the charity is acting as Landlord)
Generally, when entering into one of the above a non-exempt charity must obtain a written report from a qualified surveyor in a prescribed form, and may also need to advertise the proposed transaction. Having considered the surveyor’s report the charity trustees must be satisfied that the terms of the transaction are in the charity’s best interests and that the charity is receiving (if relevant) the best consideration that can reasonably be obtained (ie. market value).
If this process is not or cannot be followed for any reason, then the charity cannot enter into the transaction unless it obtains an order of the court or the Charity Commission to authorise the transaction. This may cause considerable delay and in the context of a sale, penalties for late completion, so it is essential that proper consideration is given to the statutory requirements at the outset of any transaction.
In certain circumstances a Court or CC order is required in any event (eg. for a disposal of property (i.e. a sale or grant of a lease) by the charity to a “connected person” – this would include a charity trustee, a donor of any land to the charity, or a close relative or employee of them).
Where the transaction is registerable at the Land Registry, the document effecting the transaction must contain a statement confirming that relevant procedures in the Charities Act 2011 have been complied with.
3. Is a qualified surveyor’s report always necessary?
As with any rule there are some exceptions, the most common being where a non-exempt charity is granting a lease for a term of less than seven years. Here there is no statutory requirement to obtain a written report from a qualified surveyor, however, to ensure they are complying with their obligations as trustees the charity trustees should still obtain advice from a qualified person with experience in the field.
4. Is SDLT payable?
There are various tax benefits available to charities and in the context of real estate transactions the most notable is the availability of ‘charities relief’ from Stamp Duty Land Tax (“SDLT”) (or Land Transaction Tax (“LTT”) in Wales) when a charity acquires property. Note that charities relief does not automatically apply and there are certain conditions which must be met - broadly, the property must be used for ‘charitable purposes’ with no tax avoidance motive – but where it does apply there will be no tax payable. In most cases a ‘nil’ SDLT/LTT return must still be made to HMRC within the specified time period – currently 30 days, but will be reduced to 14 days for transactions with an effective date on or after 1 April 2019.”.
Megan is an associate in our Commercial Real Estate team.