The Charity Commission has recently published its inquiry findings and has found basic and serious mis-management in the case of the Spiritualist Association of Great Britain which disposed of a property at Belgrave Square, London for £6m which was shortly thereafter sold on by the new owners for £21m.
It was a complex situation because the charity owned the property leasehold with a very restrictive user covenant. However, they made a number of basic errors in complying with the regime for disposal of charity property, in particular, failing to obtain a report from a suitably qualified surveyor.
Following on from this, they failed to seek independent specialist advice about protecting the charity in the event of a possible post sale increase if there was a change in use of the property or the freehold could be bought out. This is a very real possibility for long leasehold London properties and should have been taken into consideration and protected by an uplift clause or similar provision.
The trustees had also failed to take proper account of concerns raised by their solicitor before the sale was completed.
The charity was under financial pressure to dispose of the property as their landlord was demanding that they carry out significant and expensive repair works but the inquiry was clear that despite this, they should have carried out an investigation into and obtained professional property advice to protect the charity and ensure they got the right price for the property.
Charities looking to sell a property should remember the following:
- What is in the best interests of the charity
This is always a key concern and all the rules are designed to supplement this principle. The charity trustees need to show they have obtained sufficient evidence to make an informed decision on any dealings with their property.
Consideration should be given to:
- Value of the property asset
- Any onerous or unusual conditions or restrictions
- The ongoing running costs and the charity’s ability to meet those
- Conflicts of interest
Charity trustees are under a duty to ensure that any conflicts of interest or loyalty are identified. Remember the disposal (sale, lease or certain other transactions) to a charity trustee, a family member of a charity trustee, a business associate of such persons or to a trading company for the charity must first have Charity Commission approval.
- Legal requirements for a qualifying surveyor’s report
This is usually required in accordance with regulations where charities are looking at disposing of property whether by sale, lease over seven years or certain other dealings. You should take advice to ensure the rules are followed.
- Particular trusts that apply to land
Ensure you know and properly record whether land or buildings are held on a special trust or as permanent endowment as this will affect whether you can sell the properties or how you deal with the proceeds of sale. In addition, certain sale of land requires public notice to be given of those sales.
- The importance of early advice
Make sure you get professional advice early on so that the charity trustees can satisfy their legal responsibilities, keep the costs down and ensure that they get the best deal for the charity.
Please contact the following if you need advice – 01726 74433 or enquiries@stephens-scown.co.uk