Charities and leases – what trustees need to know

Regardless of their legal structure, all charities have to comply with certain requirements when dealing with land. Most of these duties set out in the Charities Act 2011 (the Act), will apply to the trustees of the charity.

Shorthold tenancies (ASTs)

However, many trustees are unaware of these rules, especially when they are granting short term lets or assured shorthold tenancies (ASTs).

The grant of a lease is treated as a ‘disposal’ for the purposes of the Act. So whatever the length of the lease, certain procedures must be followed by the trustees before a lease is granted.

Before granting a lease for 7 years or more, the charity trustees must:

• obtain and consider a written report on the proposed lease from a qualified surveyor, who must be a member of the RICS and have experience in the relevant area
• advertise the proposed letting if advised to by the surveyor in their report. Note that it may not be in the best interests for the charity to advertise if it is a simple lease
• decide that they are satisfied (having considered the surveyor’s report) that the terms of the lease are the best that can be reasonably obtained.

Before granting a lease (including ASTs) for less than 7 years, the charity trustees must:

• obtain and consider advice from an appropriate person. This does not need to be a qualified surveyor (although this would make sense!) and the advice does not need to be in writing
• decide that they are satisfied (after considering the advice) that the terms of the lease/AST are the best that could be reasonably obtained for the charity.

Charities Act

Once these steps have been taken, the letting document itself must include the relevant Charities Act statement and/or certificate prescribed by the Act.

Certain transactions are excluded from these procedures, notably a scheme made by the Charity Commission or a court, or any disposal expressly authorised by statute, for example, the Housing Act.

Trustees should, therefore, ensure that they are aware of the requirements of the Act before they grant leases and ASTs. If they don’t, they run the risk of being found to have disposed of charity land without considering whether this was in the charity’s best interests.

Commercial property partner Alasdair Garbutt deals with a wide range of work in relation to sales & acquisitions, development transactions, landlord and tenant and property management matters. He has particular expertise in property investments, property management, clawback, overage, options, business leases and development and security documents.