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Disposal of property

The Foundation would like to thank the Charity Commission for their assistance in producing this part of the Property Advice Service section of the website.
 

If you are planning to dispose of property (which we will take here to mean the sale of freehold property, the assignment of the lease under which you occupy the property or the grant by you of a lease), the better prepared you are for the disposal, the greater the chances are of the transaction proceeding smoothly and on time.

The overriding concern before you embark on the disposal are your obligations as trustees. For the sake of simplicity, these can be summarised as follows:
•    do you have power to dispose of the property?
•    would the disposal be in the best interests of the charity?
•    do you own the title to the property?
•    is there anything in the charity’s governing document that prohibits the disposal?
•    do you need authority from the Charity Commission or the Court? 

Detailed information on the matters which the trustees will need to consider in relation to the disposal can be found in Charity Commission Guidance CC28 - Sales leases transfers or mortgages: what trustees need to know about disposing of charity land.

Do you have power to dispose of the property?

Charity trustees will generally be able to rely either on a specific power to dispose of property contained in the charity’s governing document, or what is referred to as the ‘statutory power’ (contained in the Trusts of Land and Appointment of Trustees Act 1996). The statutory power basically gives trustees the same powers as an absolute owner of land. Charitable companies will usually have an express power in their memorandum and articles of association.  The trustees should in any event check that the governing document does not expressly prohibit property disposals or make them subject to a third party’s consent which cannot be obtained. The power of disposal may not however apply to property that is used to deliver the purposes of the charity, for example a village hall. Professional advice should be obtained in these circumstances.

Would the disposal be in the best interests of the charity?

You should obtain a written report from a qualified surveyor confirming that the proposed disposal is being made on terms which are the best which can reasonably be obtained by the trustees.

Do you own the title to the property?

You should make sure that you or your solicitors have the title deeds relating to the property and that your ownership is clearly shown on them. If you have mortgaged the property, your mortgagee may be holding the deeds as security for your loan. If your title is registered at the Land Registry, you can obtain official copies of the register showing your title but if unregistered, you will need to have available the chain of title deeds showing how you came to own the property, such as the lease you hold or the conveyance to you and earlier conveyances.

Will you need Charity Commission or Court consent to the disposal?

In most cases the trustees will be able to dispose of land without the consent of the Court or Charity Commission.  However, consent may be required even where the trustees have the necessary power to dispose of the property if, for example, the planned disposal: 

•    is to a ‘connected person’, for example a trustee, someone working for the charity or closely related to one of the trustees
•    is of ‘designated land’  (i.e. land which is identified in the governing document as having to be used for a particular purpose) and which is not being replaced
•    is to be made at less than the market value, or
•    otherwise goes against the qualified surveyor’s advice. 

In the case of land used to deliver the charity’s purposes there may be restrictions on its disposal or use of the proceeds of sale.  This is a complex area and you should seek professional advice as to whether you will need consent to the disposal.  You can find guidance on when consent will be needed on the Charity Commission website.

Statutory procedures for disposals


Once you have established that you have power to dispose of the property, you will have to ensure that you follow the requirements of sections 117-120 of the Charities Act 2011 in making the disposal.  Again, the requirements are detailed and professional advice should be obtained since any failure to comply could result in delays in the transaction or even invalidate it, in turn potentially causing losses for the charity and personal liability for the trustees.

In essence, the trustees must first obtain a qualified surveyor’s written report on the disposal, then market the property as the surveyor advises and satisfy themselves that the terms are the best that can reasonably be obtained for the charity. If the land in question is used to deliver the purposes of the charity, there is a statutory notification period during which the trustees have to advertise the proposed disposal and receive and consider representations. 

The advice which the trustees require is different if the disposal will be by way of a lease of no more than 7 years and without the payment to the trustees of any premium or fine.  In this case, the written advice can be given by a ‘competent person’, namely someone whom the trustees reasonably believe is competent in terms of their ability and experience to give it.   The trustees have a discretion as to who gives this advice and it can be an employee of the charity but they would be well advised to appoint someone with a relevant professional qualification. 

What you should do to prepare for a disposal

Once you are satisfied that the disposal is in the charity’s best interests and your obligations as trustees have been met, you will need to ensure that you are ready to market the property. The information you will need to put together, and the steps of the transaction, will largely be the same whether you are disposing of freehold or leasehold property.  If you are dealing with the grant of a lease of the property, you will also find useful information in the section on ‘Letting’.

The practical points to be dealt with are:

•    obtain all necessary consents to the disposal, such as any third party consents required by the governing document or any necessary Charity Commission or Court approval

•    appoint a qualified surveyor with knowledge of the local market and the type of property you are selling, ideally one recommended to you.  This will be the surveyor who will market the property and prepare the report mentioned above  

•    appoint a firm of solicitors to deal with the legal aspects of the disposal

•    nominate a member of your organisation with knowledge of the property, and preferably transactions of this type, to oversee the transaction and deal with enquiries raised by the buyer

•     prepare the property for market, for example, carry out an inspection of the property to identify any physical defects or environmental contamination and any remedial works to be carried out before it can be sold.  You should factor these costs into your budget for the disposal, together with your professional advisers’ fees and the cost of marketing the property, such as advertising costs

•    if you have any tenants or other occupiers in the building, will they remain or can their occupation be brought to an end and the property sold with vacant possession?

•    collect all documents relating to the title to the property (such as official copies from the Land Registry of the registered title and plan and a copy of any lease under which you occupy the property)

•     collect all other relevant information concerning the property to provide to the buyer, including:

-    contracts which will be taken over by the buyer  such as office supplies, catering, management and maintenance contracts
-    leases or other occupancy agreements to which the property is subject
-    copies of planning consents, listed building consents, building regulation approvals
-    costs relating to any service charge, such as estimated costs for the current year and past years’ service charge accounts
-    Energy Performance Certificates, which must be produced before completion or the seller could be liable for a fine of up to £5000

•    consider any matters which would have to be disclosed in response to the enquiries raised by the buyer such as disputes with neighbours, planning applications affecting the property and the property’s environmental history. The principle of caveat emptor, or buyer beware, will apply to the disposal and the seller is not obliged to volunteer adverse information but if answers are given to enquiries, those answers must be truthful

•    if the property is subject to a financial charge or mortgage, check what if anything is due to be repaid on disposal of the property and ensure that you will have sufficient funds to pay off any outstanding debt.  Will any early repayment charge be triggered by the disposal?

•    if you are assigning your own lease or granting a sub- lease, will you require your landlord’s consent?

For more on the information which you will need or might find useful to have ready, you could look at the Investment Property Forum’s ‘Readiness for sale – a guide for streamlining commercial property transactions’.

What happens next?


•    Heads of terms

Once you have found a buyer, you should draw up heads of terms recording the main agreed terms of the disposal.  These would usually be prepared by your surveyor/agent and would include the sale price or the rent; the timetable for exchange of contracts and completion; any conditions to which the disposal is subject such as the buyer/tenant obtaining planning consent for proposed works or its use of the property, and details of any works to be carried out by either party before completion.

•    Exchange of contracts

This is when you enter into a binding commitment to sell the property or grant the lease.  At this stage, the buyer will usually pay a deposit of 10% of the purchase price, but might push for a smaller deposit to be agreed. The deposit is generally held by the seller’s solicitor between exchange and completion.  If the buyer decides to pull out of the purchase after exchanging contracts but before completion, you will in most cases be entitled to keep the deposit.

•    Between exchange and completion

Exchange and completion would usually take place approximately four weeks apart but can take place simultaneously, in which case anything which is required on completion would have to be dealt with prior to exchange of contracts. During this period a completion statement will be prepared showing what will be payable and by whom on completion.  If there are tenants in the property who will remain after the sale, the completion statement will apportion any tenants’ payments, such as rent or service charge, which relate to any period after the completion date.

•    Completion
 
At this stage, you will need the transfer or lease document to be executed and available.  On completion, the buyer will have to pay the balance of the purchase price, or in the case of a tenant, any premium to be paid for the grant of the lease.  All outstanding debt due to any lender under a mortgage over the property being sold will have to be repaid.  If the property is being sold with vacant possession, you must ensure that anything which does not form part of the sale, including all rubbish, is removed on or before completion.

Please note that the system and terminology for disposing of property in Scotland is slightly different and professional advice should be sought if you are considering a Scottish property disposal.