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Is buying feasible?

Reviewed by Peter Tobin March 2015

This page is designed to help anyone who is at the stage of considering the broader picture to help decide whether buying a property is an option for their organisation. There is no point spending time and money looking for a property, only then to discover that the bank won’t lend to you, your organisation is not suitably constituted, or your budget totally unrealistic!

This initial scoping is best approached by questioning some key figures who will need to be involved in the process later on:

Below are some key questions for each of these.

Key questions for your senior management team and board of trustees

What are our motivations for buying a property?

Is the organisation looking to build an asset base to ensure financial security?
Or maybe it requires a particular type of premises to enable it to deliver its services in the best way? Prehaps the specific requirements of the charity mean that any building will require substantial adaption. Doing this on another person's building may not be cost effective or sensible.

Whatever your motivations for purchasing a building, look at them critically and make sure you have considered all your options. For example, could you make changes to your current premises by taking on more space or re-planning the space you have to make it more suitable? Do we have the staff and resources to undertake this investment and manage the property?

Buying a property will be time-consuming, for charities relying on communal donations this usually takes longer than imagined. It will include:
  • drawing up a brief
  • pulling together the finances
  • viewing potential properties
  • liaising with professionals
  • planning the relocation

You need to decide things like: who will manage the purchase and the relocation process?
And who will manage the building once you have moved in?
Who will make the necessary decisions during the property purchase?

The idea of buying a building may well have originated with the executive team of the charity, as they are likely to be the ones who are most aware of the day-to-day needs of the organisation.

However, the charity's  trustees - the people who are ultimately responsible for the management and administration of the charity - must approve any decision to buy a property. So it is vital that you inform trustees as soon as there is a possibility of any initiative to buy a building so that they can approve any decision to proceed with feasibility studies and associated expenditure.

One of the factors that can make decision-making in charities slower than in commercial organisations of the
same size is the fact that charities have volunteer boards which may meet only once every three months.

One way of dealing with this is for the board to set up a committee - a mixture of trustees and members of the executive team - to meet more frequently to take decisions regarding the proposed property purchase.  Members of this committee could include outside persons, prehaps within the charity's community or client group who have expert knowledge of fundraising etc. This committee should report to the full board at each of its meetings. The final decision to go ahead with the purchase should usually be taken by the full board (this link to the section about the legal side of buying contains more information about final sign-off and completion).

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Key questions to ask your solicitor

What are our options and timescales for leaving our current property?

If you are currently renting a property you will need to check the date that your lease expires. If you wish to move sooner than this date you will need to explore what options (if any) you have to end the lease early. For example, you may be able to exercise a break clause. Your solicitor will be able to outline the different options and any implications these may have for time and cost.

Are we suitably constituted to purchase a building?

Before deciding to progress with a substantial property purchase project, you should consider the ‘legal entity’ that will actually buy the property. This might be the organisation. It might, however, be advisable to create a separate entity to buy the property.

For example, if you are currently operating as an Unincorporated Trust, the liability your trustees could face is potentially unlimited (and therefore not very suitable for a property purchase).

In contrast, a Charitable Company Limited by Guarantee limits the liability of the trustees, which makes it a much more suitable entity to buy a property.

There are many types of legal entities that can be used to buy property including:
  • Charitable Company Limited by Guarantee
  • Community Interest Company
  • Company Limited by Shares
  • Charitable Incorporated Organisation

Each of these legal entities will have different implications, for example in terms of liability or tax advantages. Your solicitor will be able to help you decide which is most suitable for your particular organisation and property purchase.

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Key questions to ask the bank

It is worth speaking to a few banks to find out which ones would be prepared to help you with your purchase. You could approach your own bank, a high street bank, or one of the increasing numbers of ‘social banks’ who specifically lend to charities or organisations with a social purpose.

Ask the bank:
  • how much might you be willing to lend us?
  • what is the application process?
  • how long will it take and what information will you need?

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Key questions to ask a local commercial property agent/surveyor

Ask local property agents or surveyors:

  • what is the state of the local market in our preferred areas?
  • what is currently available?
  • what can we get for our money (or how much will we need to spend to get what we want)?
  • where should we focus our search?
  • if you require premises that are unusual so that an alternative building is more easily available which requires planning permission or use by the charity planning expert's advice might be sensible eary on

It will be helpful if you can tell the agent:

  • roughly how much space you are looking for in square feet (if space is quoted in square metres, multiply by 10.76 to get the area in square feet)
  • which locations you would consider
  • how much you can afford to spend
Remember! The search for the right building always takes much longer than anticipated.

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Key questions to ask potential grant makers

If you are hoping that part of your financial package will come from grants, you will want to find out more about which funders might be willing to fund your purchase.

Ask potential grant makers:

  • What are the eligibility criteria (to work out how likely you are to be successful)?
  • What is the application and assessment process and how long does it take?
  • Are there any conditions for funding and payout processes? (For example, a grant offer may include a ‘clawback’ condition - where the money has to be repaid under certain conditions, eg. if the building is no longer used in a way that fits with the objectives of the grant provider)

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Key questions to ask your accountant

It is worth finding out at this stage whether buying a property will have any adverse tax consequences for your organisation.

Ask your accountant:
  • What are the potential tax consequences of a purchase? (For example, a large VAT bill for refurbishment works)
  • Can these tax consequences be mitigated? (For example, can the VAT be made recoverable?)
  • If part of the property is surplus and will be quickly sold on or developed for non-charitable purposes, will the profits from that be taxable? If so, can that tax be mitigated?

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