(Version - April 2001)
1. This guidance gives general advice to charity trustees who are thinking of acquiring land, whether for the charity's own use or as an investment.
2. It is not intended to replace advice from a charity's own professional advisers. The trustees will need to consult these whenever they propose to acquire land.
3. While this guidance is written with the needs of trustees of charitable trusts in mind, the contents will also be generally applicable to directors of charitable companies. There are some differences of approach between these types of charity and we have indicated the key ones. This guidance does not apply to special cases of common investment funds (other than pooling scheme funds) or common deposit funds.
4. In this guidance
The Charities Act means the Charities Act 2011
Charitable company means a company formed and registered under the Companies Act 2006; or to which the provisions of the 2006 Act apply as they apply to a company so formed and registered; and which is established for exclusively charitable purposes.
Land means freehold or leasehold land in the United Kingdom, held (in the case of land in England and Wales) for a legal estate. 'Land' includes buildings, and also includes an interest over other land where that is acquired to accommodate the land being purchased.
Governing document is any document setting out the charity's purposes and, usually, how it is to be administered. It may be a trust deed, constitution, memorandum and articles of association, will, conveyance, Royal Charter or Scheme of the Commission.
Mortgage includes any charge over land.
Qualified surveyor means a fellow or professional associate of the Royal Institution of Chartered Surveyors (RICS).
Unincorporated charity means a charitable trust (other than a CIF or a common deposit fund) or a charitable unincorporated association, and for present purposes includes any other charity whose property is held on a trust (eg a company incorporated by Royal Charter).
Must or need are used to refer to actions that trustees, or their agents or employees, have to take by law.
Where we use terms such as the trustees should or we suggest, recommend or advise we are referring to actions which the trustees, their agents or employees could take and which we consider to be good practice, but which are not legal requirements.
5. Trustees of these charities generally have a statutory power to acquire land if it is needed to carry out the purposes of the charity or for investment.
6. The trustees of most unincorporated charities will have had, since 1 January 1997, the wide powers of land purchase conferred by the Trusts of Land and Appointment of Trustees Act 1996. These powers are available to the trustees of any charity which either already owns land or has, at some time in the past, owned land. From 1 February 2001 the scope of this power has been extended from land in England and Wales to land anywhere in the UK. The power can only be exercised if needed to carry out the purposes of the charity or for investment, and it cannot be excluded by the governing document of the charity (Unless the Governing Document is an Act of Parliament).
7. The effect of Part III of the Trustee Act 2000 gives a corresponding power to the trustees of other unincorporated charities, though, in this case, the power is generally capable of being restricted or excluded by provision in the governing document of the charity.
8. In general, a charitable company's powers to acquire land will be set out in its memorandum and articles. If the company is holding property on trust, the powers in the Trusts of Land and Appointment of Trustees Act 1996, and the Trustee Act 2000, are available to a charitable company in the same way as they are to an unincorporated charity.
9. The primary duty of trustees is to carry out their trust in accordance with its terms. Trustees also have a general duty to act reasonably and in the interests of their charity.
A trustee must exercise such care and skill as is reasonable in the circumstances, having regard in particular:
10. This means that trustees need to take all reasonable steps to ensure that:
11. Determining what constitutes 'reasonable steps' will depend on:
12. Trustees may wish to acquire land, not for use in carrying out the purposes of the charity, but as an income-producing investment. This may be done provided that they have the power to do so. The Commission can provide the necessary authority in a case where it is not otherwise available.
13. In using the statutory, or any other, power of investment, trustees must firstly have:
They must also review the investments periodically.
14. These duties with regard to investment do not strictly speaking apply to the investment of the corporate property of charitable companies. We would, however, recommend that trustees of these charities observe the principles at paragraph 13.
15. The needs and resources of charities differ widely, and land may be an appropriate way to invest the funds of some charities but will be totally unsuitable for many others. However, some of these charities may find a land-based common investment fund (CIF) a more suitable vehicle following appropriate professional advice.
16. The ownership of land carries with it obligations of varying kinds. Some of the points which will need to be considered when thinking about buying land as an investment are:
17. We would recommend that this type of investment is normally only suitable for a charity which either:
18. We strongly recommend that trustees proposing to buy land, whether for investment purposes or for use by the charity, obtain a report from a qualified surveyor who is acting solely for the trustees. We also recommend that the trustees should proceed only if the report includes the following:
19. In most cases, no. However it will be necessary to apply to us for an Order if the charity is proposing to:
20. Yes, but in the case of investment land we strongly advise the trustees to be particularly careful that the income from the land being acquired is sufficient, after deduction of all outgoings to meet the mortgage repayments and to provide an adequate return on any sum invested.
21. Usually the land offered as security for a mortgage loan is the land being purchased, but on occasions trustees will want to mortgage land which the charity already owns.
22. Trustees may, without our consent, grant a mortgage over charity land as security for money they wish to borrow provided that they have the power to do so and they can meet the requirements laid down in the Charities Act .
23. If they cannot meet these requirements they must seek our consent before they sign or create the mortgage.
24. The requirements are:
25. However, the above requirements need not be followed where the authority for the mortgage is contained in an Act of Parliament, a statutory instrument, or a Scheme of the Court or the Commission. Nor is our consent needed in such cases.
26. Further guidance and information about mortgages is given in our guidance Sales, leases, transfers or mortgages: What trustees need to know about disposing of charity land (CC28).
27. Some charity projects involving the acquisition of land arouse opposition locally, even to the extent of active hostility. Where this is likely, trustees are advised to plan carefully in advance, to consult widely and to provide full information about their proposals and the reasons for them.
28. Many issues raised in this guidance will require the advice of the trustees' solicitor or a qualified surveyor. Our website offers a wide range of easily accessible online services, tools, information and guidance which trustees should use to help them with any questions they have.
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