If you are a trustee of a charity which is looking to dispose of property in England and Wales, then there are certain steps you must take prior to disposal – one of these is obtaining a valuation report.
What must a charity do?
Basically, where a charity wishes to dispose of an interest in land, it must “obtain and consider a written report on the proposed disposition from a qualified surveyor instructed by the trustees and acting exclusively for the charity” (section 119 of the Charities Act 2011).
What is “an interest in land”?
According to section 4 of the Charity Commission’s (helpful) guidance note, this includes:
- a sale, transfer or conveyance of freehold land
- a lease for more than seven years
- a grant or release of a right, easement or restrictive covenant
- a lease for seven years or less where a premium or other fine is paid to the charity
- any other type of disposal of an interest in land that is not a mortgage or charge against land e.g. a surrender of a long lease
What constitutes a “qualified surveyor”?
This is defined in section 119(3) of the Charities Act 2011, as being someone who is
- a fellow or professional associate [fellow – FRICS or member – MRICS] of the Royal Institution of Chartered Surveyors or satisfies such other requirement or requirements as may be prescribed by regulations made by the Minister, and
- is reasonably believed by the charity trustees to have ability in, and experience of, the valuation of land of the particular kind, and in the particular area, in question.
What constitutes a qualified surveyor’s report?
The guidelines on what constitutes a qualified surveyors’ report are contained within the Schedule to the (aptly) named Charities (Qualified Surveyors’ Reports) Regulations 1992,. The schedule which consists of 9 paragraphs, each with specific points. It is worth nothing that whilst not a legislative requirement, it is a professional requirement for a fellow or professional associate of the RICS to ensure their report complies with the general requirements of VPS 3 of the RICS Valuation – Global Standards 2017: UK national supplement.
Broadly speaking, the following at minimum should be covered:
- What is to be sold?
The land to be disposed of must be, amongst other things, described in terms of characteristics such as measurements, use, number of buildings, and so forth. It is therefore imperative that the description of the relevant land is accurate, and any and all measurements have been taken accurately by a qualified surveyor, backed-up by comprehensive site notes in accordance with the International Property Measuring Standards: Residential Buildings, or the RICS Code of Measuring Practice (as appropriate)
- Existing leases
Whether the relevant land (or a part of it) is leased by or from the charity trustees and, if so, then details regarding the length of lease, rent, and clauses regarding rents or service charge, or any other provision which in the surveyor’s opinion affects the value of the land. So the surveyor must liaise either with the charity’s solicitors with regards to obtaining up to date title documents and copies of the lease, or undertake their own research to satisfy themselves as to the terms and contents of the lease.
- Easements and covenants
Are there any easements or restrictive covenants (among other things) that the land is subject to?
- Condition of buildings and need for repair
Are the buildings included in the disposal in good repair, and if not then should they be repaired prior to sale, and what are the extent of the repairs?
- Alterations to buildings
If it would be in the best interests of the charity (in the surveyor’s opinion) to alter any buildings and an estimate of the outlay required.
- Method of sale
Advice should be provided on how to dispose of the land on the basis that the terms of the sale are the best that can be reasonably obtained for the charity. Issues such as whether the land should be divided for the purposes of the sale, or should the sale be delayed?
If the surveyor is able to, then can advice be provided on the changeability of VAT? If such advice is beyond the scope of the surveyor then a statement to that effect should be made.
The current value of the land to be disposed of – having due regard to the current state of repair and circumstances – is there a statutory tenant in situ (for example)? There should be a clear statement that the disposal of the interest is or is not in the best interests of the charity.
- Alternative options
If the surveyor is of the opinion that the sale is not in the best interests of the charity, then the reasoning why and related advice.
Bear in mind, this list is not exhaustive and your instructed surveyor should be conversant with the schedule itself, RICS guidance and relevantcase law.
Does this really matter?
In a word, yes.
On 30 March 2017, the Charity Commission for England and Wales found that The Spiritualist Association of Great Britain sold a property in central London for £15M less than it was worth, after a number of failings, including that – among other things, they:
- obtained, but did not act on advice; and
- acted on advice not in compliance with the statutory requirements.
In this case, whilst the Charity Commission decided it was not possible or proportionate to take further action, the incident was deeply embarrassing to the charity. It is worth remembering that the CC has the power – among others – to issue and publish an official warning to a charity, and suspend or disqualify individual trustees if they find cases of wrongdoing.
Where should a charity start?
- Firstly, instruct the appropriate experts – namely, a solicitor who specialises in charity law, and a qualified surveyor (either an MRICS or an FRICS). Ensure that both parties are able to act for the charity exclusively, and in its best interest. It is for the charity trustees to satisfy themselves that the surveyor has the appropriate qualifications and understands both the legislation and the regulations.
- Obtain written advice from the qualified surveyor which complies with the RICS Red Book and the Schedule to the 1992 Regulations. At myleasehold we can provide such a valuation, and we regularly act for charities who are looking to dispose of either leasehold or freehold land.
- Take the advice of the surveyor as to whether the property to be disposed of should be advertised for sale or not, and if it should be advertised, in what manner should such advertising occur.
- Assess objectively – in consultation with the surveyor – whether or not the terms of any disposal are the best that can reasonably be obtained for the charity. If they aren’t (or might not be) then any offer should be declined until further advice is taken.
If you wish to speak with one of our experts regarding your requirements as a charity in disposing of land, then call us on 020 7034 3435 or e-mail firstname.lastname@example.org.