The Places of Worship (Enfranchisement) Act 1920 applies to premises held under a lease which are 'held upon trust' for use either as a place of worship or a minister's house, and are actually being used in accordance with that trust. Provided the lease fits the criteria specified within the Act, the owner has a right to 'enfranchise' the property.
What is leasehold enfranchisement?
Leasehold enfranchisement is essentially a right to buy the freehold to your property, regardless of whether the freeholder wants to sell. It is better known in the residential property context, where a group of leasehold flat owners can club together to force the freeholder to sell its interest to them. Under the Places of Worship (Enfranchisement) Act, the right works in a similar way to a power to acquire land under a compulsory purchase order.
It should of course be noted that enfranchisement does not entitle a leaseholder to acquire the freehold for free, or even for a reduced price. The leaseholder would need to pay the freeholder 'compensation', which would be calculated by reference to the market value of the land. Any buildings erected, or improvements made, by the leaseholder would not be taken into account when calculating the value.
What types of leases qualify?
The Act specifies a number of criteria for a lease to qualify for the right to enfranchise:
- Short leases will not qualify, since the original term of the lease must not have been less than 21 years. However, it doesn't matter if there are fewer than 21 years remaining on the lease at the time of enfranchisement.
- The size of property that can be enfranchised is limited to 2 acres. If the land held under the lease is larger than this, the right may still apply but only to part of the property.
- The Act doesn't apply where the use of the property as a place of worship is in contravention of a covenant within the lease, or where the land is held by a local authority for certain purposes.
Lease must be 'held upon trust'
Whilst the above criteria are reasonably broad, the issue that has limited the applicability of this Act has been the requirement that the lease be 'held upon trust' for use as a place of worship.
Property is held on trust where the legal owner holds property for the benefit of someone else or, in the case of a charitable trust, for charitable purposes. Since a charity that is unincorporated (i.e. not a company or a charitable incorporated organisation) cannot hold legal title to property, the charity trustees would hold the property 'on trust' for the charity.
Whilst it was the norm for charities to be unincorporated back in 1920, these days it is more common for charities which own property to be incorporated. Being a company or charitable incorporated organisation brings with it the benefits of limited liability, which are particularly useful when dealing with property. However, the downside in relation to the Places of Worship (Enfranchisement) Act is that an incorporated entity holds property in its own right, rather than 'on trust'. On a strict interpretation, it would appear that the Act wouldn't apply in such circumstances.
The May 2020 case of Hope Community Church (Wymondham) v Phelan and others has cast doubt on this interpretation and opened up the possibility that incorporated charities could also benefit from the right to enfranchise. In this case, the High Court ruled that a church which was a charitable company had the same enfranchisement rights under the Act as an unincorporated charity would. The judge ruled that, where a charitable company is under an obligation to use its property purely for charitable purposes, it is in an equivalent position to that of a trustee. In the judge's view, it was clear that the Act was intended to apply to incorporated charities in the same way as unincorporated ones.
This being a High Court judgement, it is possible that the ruling will be reversed or at least qualified in the future upon appeal. It should also be noted that the Act requires that the lease be held 'for use as a place of worship'; if a charity's purposes are broader than this then arguably this criteria won't be met.
Next steps if you think your charity might qualify
First, ask yourselves whether it is in the best interests of the charity to take on the freehold. Being a freeholder comes with a number of advantages, including permanent ownership and freedom from rental payments. However, if you already have a long lease with only a nominal rent payable, the cost of paying the compensation might not be worth it.
Next, seek legal advice as to whether the right to enfranchise applies. It will be important to ensure that the lease, the purposes for which the property is held and the actual use of the property all fall within the criteria of the Act.
Finally, consider negotiating with your landlord about buying the freehold. You might find that they are open to selling, and the knowledge that you could be entitled to enfranchise could give you the extra bargaining power you need without having to incur court fees and legal costs.