Charity trustee duties in connection with property transactions
The provisions of the sections 117 to 121 of the Charities Act 2011 derive from broadly similar provisions dating back to the Charities Act 1992. The basic principle is that charity trustees are obliged to seek marketing and valuation advice prior to entering into most land transactions on a commercial basis.
There has never been any similar regime directed at property acquisitions. Over time the Charity Commission has, to varying degrees, stressed the need for charity trustees to consider whether to at least take appropriate professional advice in all property acquisitions; in order to comply with their general duties to preserve the financial integrity of the charity, and apply its assets in an appropriate way.
The position has changed with respect to acquisitions that may be regarded as a social investment.
Charities must ultimately apply their assets towards achievement of their objects, either directly, or by investing funds to generate profits to fund achievement of those objects.
There was a belief that although there was an obligation to do the former, and there would generally be power to do the latter, there was often a lack of a power in charity constitutions to do both. In 2016 amendments were made to the Charities Act 2011 to deal with this concern.
292A Charities Act 2011 - meaning of 'social investment'
The Charities (Protection and Social Investment) Act 2016 introduced subsections 292A to 292C into the Charities Act 2011.
Section 292A states that 'social investment' arises where a charity applies or uses funds or other property with a view to both
a) directly furthering the charity's purposes, and
b) achieving a financial return for the charity
The financial outcome for the charity with respect to the latter is better for the charity than expending the whole of the funds, or other property.
The subsections could potentially cover any situation where a charity simultaneously furthers its objects, and obtains an income from the acquisition of an asset.
This could include a situation where a charity takes a lease of property, or buys property, with the intention of using some of the property in connection with its charitable purposes (either directly as operational property or as administrative offices, for example) and using other parts of it to raise income.
It could also include situations where the main aim of the letting/hiring out was not commercial. For example, one in which a charity established to support other charitable organisations, chooses to carry out part of its objectives by incubating smaller charities on the basis of a rental or hire payment. Or a charity running a community centre, hiring out its space to community organisations in pursuance of its objects, thereby generating an income.
It would be safest to assume that the section applies to all such situations.
292C Charities Act 2011 - your duties
Section 292C requires that before making any social investment, under the section 292B power or otherwise, the charity trustees must:
a) consider whether in all the circumstances any advice about the proposed social investment ought to be obtained.
b) obtain and consider any advice they conclude ought to be obtained, and
c) satisfy themselves that it is in the interests of the charity to make the social investment, having regard to the benefit they expect it to achieve for the charity (by directly furthering the charity's purposes and achieving a financial return).
Therefore whenever charities are acquiring property for mixed use, including both charitable and income-producing activities, they should consider these issues and minute the results of their deliberations and the reasons for them.
In many cases, where part of the property is to be let following acquisition, the charity trustees may decide that it would be efficient for the advice relating to the acquisition to be given by a surveyor. The surveyor could subsequently give the charity advice under sections 117 to 120 of the Charities Act with respect to the 'disposal' which is the subsequent letting of part of the acquired property.