Charity land in focus: legal, surveyor and sustainability insights webinar

This article is based on a webinar held on 21 November 2024, where Laetitia Ransley, Partner in our Charities team; William Ray, chartered surveyor and Partner at the real estate advisory firm, Newmark; and Fred Lee, Senior Counsel in our Commercial Property team, discussed the new legal developments affecting charity land transactions and how charity trustees can best meet their responsibilities.

If you missed out on this webinar and would like to request a link to the recording, please click here.

In recent years, the legal framework and best practice regarding charity land disposals and acquisitions have undergone significant change. This shift has been driven by developments in the statutory regime for these transactions and an increasing emphasis by charities on environmental strategies.

Why are charity land transactions different?

Laetitia began the webinar by reminding viewers of the key considerations for charity land disposals. While legislative changes over the last 40 years have significantly liberalised the regime for disposing of charity land, Laetitia noted that the underlying function of the statutory regime remains – both to protect trustees from bad deals by requiring that they take suitably qualified advice and to put third parties on notice that they are dealing with a charitable organisation. 

Preliminary considerations

When disposing of land, trustees must first consider whether the sale involves “charity land”, which has been redefined in the amendments to the Charities Act 2011 introduced by the Charities Act 2022 (the Act) as land in England and Wales held by or in trust for a charity solely for its own benefit. The trustees will then need to check that they have the necessary powers to deal with the land, and whether any other consents are required. Finally, they will need to assess whether their disposition is caught by the statutory regime. For example, disposals to other charities for less than the best price obtainable and where there is an element of social investment are now caught, but residential leases to employees where the term is less than a year are now excluded.

What does the statutory regime now require?

Where the statutory regime does apply to the disposal, trustees will either need to (1) obtain an order from the Charity Commission or the court; or (2) commission a report from a designated adviser instructed by the trustees and acting exclusively for the charity. The latter approach is used in the vast majority of cases. 

Once they receive the designated adviser’s report, the trustees must decide that they are satisfied, having considered the adviser's report, that the terms on which the disposition is proposed to be made are the best that can reasonably be obtained for the charity. The relevant transaction documents must then include a statement that the statutory regime has been followed (or that the disposal is outside the regime); the Act has done away with the unwieldy requirement for all the charity trustees to give “certificates” in the transaction documents.

There are reduced requirements for leases of seven years or less.

Designated adviser: Under the Act, the definition of a designated adviser has been expanded to include estate agents and agricultural valuers as well as Royal Institution of Chartered Surveyors (RICS) qualified surveyors. The adviser must be 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.

Advice: Under new secondary legislation, the content of this advice has also been streamlined so that it must address only (1) value; (2) steps to enhance value; (3) whether/how to market; (4) anything else to achieve best terms reasonably obtainable; and (5) any other matters to draw to the charity trustees’ attention. The trustees must consider any advice on advertising that is given by the adviser, but there is no longer a statutory requirement for the charity to follow that advice. 

If the statutory regime is not complied with, there are protections for purchasers in good faith, but it is likely to be a breach of trust or a mismanagement issue for trustees.

Laetitia concluded her presentation by identifying some tricky aspects that remain or have been introduced by the Act; for example, disposals to “connected persons” and additional notice requirements remain necessary where land is held “for stipulated purposes”.

Timing

Laetitia noted that it is generally desirable to obtain advice at the outset of a transaction on what terms to expect and an assessment of the terms once these have been negotiated.

Land acquisitions

Land acquisitions are not dealt with in the statutory regime, although Laetitia noted that trustees’ general duties do still apply to these transactions and that the Charity Commission has, in recent years, updated its guidance on decision making and acquiring land to strongly recommend that a designated adviser’s report is commissioned to help support trustee decision making.

The surveyor’s perspective

William Ray then gave the surveyor’s view on how the regulatory changes are likely to affect charities. Charities may be more inclined to use estate agents as their designated advisers, as agents may agree that their fee for the advisory work is absorbed as part of their commission. William warned that, while this approach may be appropriate for a simple house sale, estate agents may have less appreciation for the alternative use and/or development potential for more complex transactions, which may lead to an undervaluation of the property. William also cautioned against potential inclinations of trustees not to advertise charity land (following the revocation of the prescribed requirement to do so) as the exercise can often help to draw in higher offers, negotiate out onerous conditions and provide alternative options should an accepted offer fall through. 

While there is no legal requirement for a designated adviser’s report when acquiring land, as Laetitia noted, the Charity Commission strongly recommends it. William noted that the report can be useful to ensure an acquisition suits a charity’s overall occupational strategy and environmental agenda, as well as making sure that related costs, like development works, are factored into the offer price. 

Case studies

William closed with two recent deals in which Newmark has been involved, to highlight the importance of securing open advertising and upfront advice. 

A charity-owned a medical college in North London which was identified as surplus post-Covid, and a preliminary report was sought prior to the sale to advise the trustees of the property’s value and sale strategy. The report emphasised the importance of advertising, given the perceived appetite for this type of property and to ensure proper due diligence was undertaken. An unsolicited cash offer was made and rejected on Newmark’s advice, and the property instead went to best bids, resulting in an offer from the same party which was 40% higher than its original bid, removing its conditions and bringing forward exchange to within two weeks. 

In another case, a charity was approached by a developer for oversailing rights over its church, which included a licence for works and an easement in perpetuity. The developer offered just a minimal sum and the charity’s legal costs. Following Newmark’s report which highlighted the strategic importance of the easement to the developer, who planned to build a 28-storey tower and required the oversailing rights to allow for window cleaning, the offer was rejected. Ultimately, a sum four times more than the original offer, as well as rights of light compensation, was secured.

Net zero considerations

Lastly, Fred discussed the UK’s net zero strategy, which is a commitment to reduce and remove emissions like carbon dioxide, methane and nitrous oxide from the atmosphere to limit the rise in global temperature to 1.5°C above pre-industrial levels. Fred explained that charities have often been frontrunners for sustainable objectives which can help governors and trustees comply with their operational responsibilities, showcase the organisation’s good governance and bring with it reputational benefits helpful in preserving charitable status. Sustainability strategies themselves can also create more vibrant and resilient communities through capital projects and allow organisations to facilitate greater social impact. Property-specific sustainable initiatives including Building Research Establishment Environmental Assessment Method (BREEAM) certification for works, improving buildings’ energy efficiency in line with minimum standards and the installation of EV charging stations, photovoltaic cells and heat pumps all work towards the path to net zero.

Fred also discussed the rising prominence of “green lease” provisions in the letting and occupation of properties. These are more frequently being incorporated within leases to ensure compliance with sustainable objectives like data sharing. Data sharing itself is a practice Farrer & Co has been particularly interested in, having acted as co-sponsor to the British Property Federation’s new report, “Energy Data, Buildings and Net Zero: Closing the Data Deficit”, which advocates for mandatory data sharing to improve the monitoring and understanding of energy performance and aid a net zero trajectory.

We were delighted with our viewers’ engagement with the webinar, with lots of interesting questions raised in the concluding Q&A.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, February 2025