Nightmares involving land – don’t make your property an afterthought

Andrew Small, Partner in the Russell-Cooke Solicitors, charity law non profit team. Clare Garbett, Senior associate in the Russell-Cooke Solicitors, charity law and not for profit team.
Multiple Authors
5 min Read
Andrew Small, Clare Garbett

Property – often overlooked

In the results of Ethical Property Foundation's 2018 Property Matters Survey, 41% of respondents said that no one was specifically responsible for property in their organisation, 44% that they did not regularly report on property to their trustees, 39% that they do not carry out regular risk assessments on their property, and 32% that they do not have complete records of the property they own or rent.

Charity trustee duties with respect to property

This is of concern because trustee duties apply just as much to property as any other asset of a charity.

There are statutory obligations involving taking and considering advice on specified matters with respect to disposals and mortgages.

However there are also general trustee duties which will apply on all dealings with land, including:

  1. ensuring that the charity is carrying out its purposes for the public benefit
  2. acting in the charity's best interests, including properly recording decision-making and trustees managing conflicts of interest and not benefitting personally from a transaction
  3. complying with your charity's governing document and the law, including with respect to the relevant statutory obligations relating to disposals and mortgages of land under the Charities Act 2011
  4. managing the charity's resources responsibly, including not exposing the charity's assets, beneficiaries or reputation to undue risk, ensuring that property is recorded as belonging to the charity and ensuring that charitable assets are not disposed of at an undervalue
  5. acting with reasonable care and skill, including seeking appropriate specialist professional advice
  6. ensuring that the charity is accountable, including making sure that the interests of beneficiaries and other relevant stakeholders are taken into account

Charity Commission cases

Charity Commission regulatory reports into charities which highlight some of the things to watch out for with respect to your property include:

Christ Embassy

In this case following a lengthy statutory inquiry the Commission identified sufficient failings by trustees to (amongst other things) exercise its powers to remove some of the trustees from office.

Property-related failings identified included:

  • failing to record three properties as being owned by the charity rather than a different associated entity
  • failing (since the charity was unincorporated and therefore held land in the names of individual trustees on trust for the charity) to keep the registered titles to its land updated on changes of trustees
  • subsidising a separate company's occupation of its property without justifying why free use of the premises by that company was in the best interests of the charity
  • failing to properly insure risks with respect to the property

The Spiritualist Association of Great Britain

In this case charity trustees sought to dispose of a burdensome lease with a restrictive use clause. They were criticised by the Commission when they sold their interest in the property for £6 million, having not fully complied with the statutory duties on disposals, only for it to be reported in the media that the buyer subsequently sold the property on for £21 million.

The Commission felt that, if the trustees had fully complied with the disposal requirements of the Charities Act, including in particular the requirement to advertise, the charity might have sold the property for more money, either to a different buyer or with the benefit of overage provisions which might have netted the charity some of the subsequent uplift in value.

It is speculative whether, if the trustees had acted differently, the result for the charity would actually have been different, e.g. whether a different buyer could actually have been found or whether a buyer could actually have been persuaded to pay more/enter into an overage arrangement and whether such an arrangement could be properly secured. It also appears that the trustees did seek Commission advice at various stages during the transaction and the Commission was less helpful than it could have been in giving them clear guidance.

However, the failure to tick the statutory boxes with respect to the transaction and to approach it in a sufficiently strategic manner resulted in the Commission being highly critical of the charity in its report.

Imamia Mission (UK)

Here, the Commission were again alerted by external complaints made by people opposed to the disposal. The trustees were criticised for not consulting widely enough with beneficiaries regarding a relocation of the Charity, although ultimately the Commission concluded that the decision was not an unreasonable one.

Garden Bridge Trust

This case arose because decisions made by the trustees to spend substantial sums on an ultimately aborted construction project had been the subject of adverse publicity.

In the event, it appears that the charity was able to present evidence to the Commission of good systems and oversight and of having considered and dealt with risks. In particular, the trustees were able to show that commitment to construction contracts (which in the event led to significant wasted expenditure) would, if the project had proceeded as the trustees had anticipated, have resulted in significant savings.

St Margaret's Somerset Hospice

In this case, the Commission concluded that trustees had acted properly in respect of a proposed major remodelling of services involving a property closure.

A point of interest here is that the trustees reported the decision to the Commission as a serious incident, which possibly played well with the Commission by giving them advance notice of the issues when subsequent complaints were made.

Lessons for charities

In a number of these cases the Commission got involved because of adverse complaints in the media or complaints from charity members/local people, in some cases alleging improper behaviour/personal interests which were not, in the event, upheld.

In many ways, by the time that happens the damage to a charity's reputation has already been done – external parties may not take notice of the fact that a Commission Report ultimately exonerates a charity, but only of the fact that the charity was being investigated, regardless of the outcome.

However, it will help in dealing with such complaints (and potentially avoiding such complaints) if trustees can show that they have property on their strategic radar and are able to demonstrate from their records that they have properly considered the key risks with a property transaction and can justify their approach.

Given the ever increasing expectations of the Commission regarding the reporting of "Serious Incidents" by charity trustees, and the ever broadening scope of what the Commission considers to be a serious incident, it may be advisable to report property incidents as serious to the Commission even in advance of negative publicity, to avoid the Commission taking a harsher line in the light of subsequent media pressure having not first been notified — although as we have advised previously, this does need careful handling given that the Commission has been known to make statements on the contents of serious incident reports to the press. 

We will consider these and other issues, using a range of case studies based on transactions we have advised upon, in our Planning a Major Property Transaction seminar on Tuesday 25 February.

You can also access Ethical Property Foundation's latest Property Matters Survey, which we are sponsoring and some of the 2018 results of which are referred to in this article, at the EPF website.

Briefings Charities Andrew Small Clare Garbett charity law christy property property law Charity Commission Russell-Cooke