DISPOSALS OF CHARITY INTERESTS IN PROPERTY OG54 B2

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OPERATIONAL GUIDANCE

DISPOSALS OF CHARITY INTERESTS IN PROPERTY

REQUIREMENTS WITH WHICH TRUSTEES MUST COMPLY UNDER s.36 WHEN DISPOSING OF LAND WITHOUT AN ORDER

OG 54 B2 – 01 February 2007

Purpose

This guidance gives details of the requirements with which trustees must comply under s.36 when they dispose of land and buildings, other than by way of a mortgage, without an Order. It does not explain the special considerations which apply when dealing with the disposal of land which is required to be used for a specific purpose of the charity (designated land). This is dealt with in OG 54 B3. For details of disposal by way of a mortgage see OG 22.

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Contents

1. The need for s.36 and exceptions to these requirements
2. Disposal of land by trustees under s.36(3) when our consent is not needed
3. Disposals of land by trustees under s.36(5)
4. Disposals of land by way of a mortgage under section 38(3)
5. Third party offers
6. Trustees' decisions on disposals
7. Disposal of land used for particular purpose(s) (designated land) - s.36(6)
Glossary of Terms used in this Guidance

Index to further related information


The Law	Refer to a lawyer	Refer to an accountant

1. The need for s.36 and exceptions to these requirements
	1.1 The need for s.36 1.2 Are there any exceptions to the requirements of s.36?

	1.1 The need for s.36
	Section 36 sets out a framework within which trustees must work when considering and making a disposal of land, other than by way of a mortgage. These constraints are to ensure that the trustees achieve the best terms reasonably obtainable for the disposal or, where the disposal is intended to further the objects of the charity, that the disposal is expedient in the interests of the charity.
	If it is the case that trustees cannot or choose not to comply with the requirements of s.36 then an Order will be needed to authorise the disposal if the controls apply to the disposal. We are unlikely to make an Order when trustees simply will not comply with ss.36(3) or (5) without good reason. For more information on Orders in connection with disposals see OG 54 B4.

	1.2 Are there any exceptions to the requirements of s.36?
	The disposal of land which is not in England or Wales is not covered by this section. Certain other disposals and some charities are excepted from the requirements of s.36 by ss.36(9) and (10) and s.40 of the 1993 Act.
	Under s.36(9) these are disposals:
	Where a general or special authority is granted by statute or legally established Scheme (see OG 54 B6 section 2);
	From one charity to another with similar objects for less than best price (see OG 54 B6 section 3); and
	by way of lease to a beneficiary for less than the best rent where the lease is intended to enable the land to be occupied for the charity’s purposes (see OG 54 B6 section 4).
	In carrying out excluded disposals, under s.36(9), trustees will not need to follow any of the requirements of s.36. However, trustees will still need to take account of general trust law in some areas. In the circumstances indicated in section 4.2 of A1, they will also be subject to the duty of care in s.1 of the Trustee Act 2000 - see OG 86 B6.
	Also there are certain disposals to which s.36 does not apply under s.36(10) of the Act.
	Section 36(10) provides that nothing in s.36 applies to any disposal:
	by an exempt charity (see OG 54 B6 section 6.2);
	by way of a mortgage or other security (see OG 54 B6 section 6.3) (because s.38 applies);
	of an advowson (see OG 54 B6 section 6.4).
	A more detailed explanation of these exceptions and exclusions can be found in OG 54 B6.
	Section 40 of the 1993 Act excludes certain releases and redemptions of rentcharges from the scope of section 36 - see OG 54 B8.

2. Disposal of land by trustees under s.36(3) when our consent is not needed
	2.1 Types of disposal affected 2.2 Requirements under s.36(3) 2.3 Surveyors' qualifications 2.4 Must trustees always obtain a surveyor’s report? 2.5 Must the surveyor act exclusively for the trustees? 2.6 Can one of the trustees act as the qualified surveyor? 2.7 Contents of the surveyor's report

	2.1 Types of disposal affected
	The requirements of s.36(3) apply to a wide range of disposals including:
	sales of freehold land;
	grants of leases for a term of more than seven years (but see also section 3);
	grants of leases for a term of seven years or less where the trustees receive a fine in whole or part consideration for the grant;
	grants of rights (eg fishing rights), easements and options;
	exchanges of land;
	surrenders or assignments of a leasehold interest;
	release of a restrictive covenant;

	2.2 Requirements under s.36(3)
	Before entering into an agreement/contract for the disposal of land the trustees must comply with the following requirements. If they do not then an Order from us will be required to authorise the disposal before completion. The requirements state that the trustees must:
	obtain and consider a written report from a qualified surveyor instructed by them and acting exclusively for the charity (but see also section 2.5 below);
	advertise the proposed disposal for the period and in a manner that the surveyor advises in his or her report (unless the trustees have been advised by the surveyor that to advertise the disposal would not be in the charity's best interests) - this is to test the market for higher offers and is separate from the requirement to advertise under s.36(6) in some circumstances;
	decide that they are satisfied, having considered the surveyor's report, that the proposed terms of the disposal are the best that can reasonably be obtained – see sections 5 and 6 below.
	(The need to advertise the disposal may be relaxed in the case where a charity is disposing of an interest in land to another charity. – see OG 54 B6 section 3.3).

	2.3 Surveyors' qualifications
	For the purposes of s.36(3), a qualified surveyor is defined by s.36(4) as a person who:
	is a fellow or a member of the Royal Institution of Chartered Surveyors (RICS) (only such people are entitled to use the designatory letters FRICS or MRICS) - since 1^st January 2002 RICS has included the Incorporated Society of Valuers and Auctioneers (ISVA) - or who satisfies whatever other requirements may be prescribed by the Home Secretary in regulations; and
	the trustees reasonably believe to have the ability in, and experience of, valuing land of the particular kind and in the particular area in question.
	The Secretary of State has not made regulations of the kind referred to above. The power exists principally to allow the requirements currently stated in s.36(4)(a) to be changed if the need arises in the future.
	The definition of qualified surveyor relies both on professional qualifications and practical ability and experience. To satisfy the latter requirement the surveyor must:
	have considerable experience of the property market in the town or district where the trustees' land is situated;
	be familiar with the factors which affect the value of the type of land in question (eg agricultural, freehold or leasehold residential, light industrial, etc) within the market; and
	know which methods of marketing and disposal are most likely to succeed in the market for that type of land.

	2.4 Must trustees always obtain a surveyor’s report?
	Trustees must comply with s.36 no matter how small the transaction may be. For example, the proposed grant of an easement over charity land will still need a surveyor's report under s.36(3). Indeed, it is in the sort of transaction where there is no market that trustees may be faced with the greatest difficulty in determining the proper price to be obtained for the interest in land which they are granting. They may undervalue the disposal because of the seeming lack of impact on the beneficial use of the property, but matters may not be as straightforward as they seem. The value to the acquiring party may be an important element in determining the price.
	There may be some (relatively rare) cases where trustees can justifiably ask us to make an Order without a report from a professionally qualified surveyor. Two examples are given below.
	There may be cases where it is suggested to us that we eliminate the need to obtain a surveyor's report by giving consent to the disposal. We should consider doing this if the cost of obtaining the report appears to be out of all proportion to the value of the transaction and we can be reasonably certain that the value of the transaction is genuinely low. An example here would be if the charity trustees are disposing of wayleaves and we have dealt with these trustees in the recent past over similar wayleaves valued recently by the charity's surveyor. In this situation we would need to make an Order under s.36(1) to give our consent. Otherwise, for the reason given above, we should normally advise the trustees to obtain the report as required by section 36(3).
	A second possibility is where a charity with land in remote areas may find it difficult to find a qualified surveyor with sufficient knowledge of local land values as required of a qualified surveyor under ss.36(4)(a) and (b). In such circumstances it is likely the trustees will have to instruct an estate agent who is not professionally qualified under s.36(4)(a).
	In considering the estate agent's report, case officers should have regard to the requirements of the Charities (Qualified Surveyors' Reports) Regulations 1992, which set out the information that should be contained in the surveyor's report. However, such details may not be needed for every transaction. If the information given is sufficient, bearing in mind the size of the transaction, we should not ask the charity to incur the cost of a further report.
	In these circumstances where the charity's surveyor is not qualified under sub-section (4)(a), the trustees will not be able to comply with s.36(3). Thus if the disposal is to proceed, it will require authorisation by way of an Order under s.36(1).
	If the transaction is a minor one, for example the grant of a wayleave to an electricity company, and the caseworker is satisfied with the information provided, or any other case where the report is from an unqualified surveyor, the Order may be made by an authorised officer at PB4 level.
	A third possibility is that the disposition contemplated by the agreement is at an undervalue. A disposition at an undervalue would often, in practice, be taken outside the scope of section 36 by sub-section 9(b) or (c), but there may be other circumstances where a disposition at an undervalue by a charity would be proper, for example a disposition to a public authority which was intending to enter into a commitment to use the property for a purpose which was compatible with the objects of the charity. Trustees would not be able to comply with s.36(3) before entering into this sort of agreement to dispose of land at an undervalue, and the disposition would have to be sanctioned under s.36(1).

	2.5 Must the surveyor act exclusively for the trustees?
	When a surveyor is engaged for the purposes of s.36(3), he or she must be instructed to act for the charity by the trustees in their capacity as trustees (ie the surveyor must not act personally for them or any of them). The surveyor, in most cases, must act exclusively for the charity and for no other party with any interest in the disposal.
	However there may be exceptional circumstances, for example, where land is being sold together with adjoining land not belonging to the charity, a surveyor may act for all the vendors. In such circumstances, the trustees will not be able to proceed under s.36 without one of our Orders. We can accept a report from a surveyor acting for all the vendors provided it meets the criteria set out in the Regulations referred to in section 2.7 below and either:
	the charity's interest is quite small; or
	the apportionment of the total proceeds is quite straightforward and obvious.
	Case workers should be aware in such cases that the "marriage value" of the plots of land, when combined, may be greater than the value of the sum of the individual plots. In such a case, the land belonging to the charity may be a key element in the disposal, for example, if it is the vital last piece that allows access to the rest of the site. Caseworkers should be satisfied the charity has negotiated the best terms obtainable in the circumstances, for example, a suitable premium for the land if that is appropriate, before giving consent.
	Trustees often instruct a firm of surveyors rather than an individual surveyor to act for them. This is acceptable provided that the trustees make it clear when instructing the firm that the report given to them for the purposes of s.36(3) must come from someone in the firm who is a qualified surveyor within the meaning of s.36(4).

	2.6 Can one of the trustees act as the qualified surveyor?
	An employee or a trustee of the charity who meets the requirements of s.36(4) may act as the qualified surveyor. Where there is a provision in the governing document allowing trustees to be paid for professional services (a "professional trustee charging" clause) the trustee can be paid for the work provided that the appointment and payment are in accordance with the professional trustee charging clause.
	Where there is no such clause in the governing document, a trustee surveyor cannot be paid, and neither can his firm, without our consent by way of either:
	giving our written approval to exercise the trustees’ constitutional power of amendment (if any) in such a way as to allow the payment; or
	an Order under s.26 (where there is no express prohibition in the governing document); or
	a Scheme under s.16.
	We should give our consent if it is clear that this is going to save the charity money. Trustees should be advised to read CC11 Payment of Charity Trustees.
	However, it may be preferable to advise the trustees to appoint an independent person. This could have a number of benefits including:
	avoiding the potential of any suggestion of conflict of interest; or
	providing the opportunity for the professional member of the trustees to monitor and give his or her views on the report.

	2.7 Contents of the surveyor's report
	The Charities (Qualified Surveyors' Reports) Regulations 1992 (SI 1992/2980) prescribe the contents of the surveyor's report. When instructing a surveyor, it is the trustees’ responsibility to make sure that the surveyor is aware of these regulations as the surveyor’s report must contain everything prescribed within them. Briefly the regulations state that the surveyor should comment on:
	whether the land or buildings are in good order and if any work needs to be done before the sale;
	whether the land of buildings are subject to any restrictions, easements, etc;
	advice on how best to sell the land; and
	the surveyor’s opinion on the value of the property.
	Although the requirements are detailed, the regulations will not cover, in some cases, all the matters on which the trustees would like to receive advice. The trustees may ask the surveyor to comment on any other matters which are relevant to the disposal, for example:
	whether or not a particular offer represents the best terms reasonably obtainable; or
	what the effect of the sale on the value of adjoining land retained by the trustees.
	If the surveyor needs to provide more than one report, eg at different stages of the transaction, this is acceptable for the purposes of the regulations, provided that all the prescribed matters are eventually covered in the reports. The surveyor’s report should be in writing and must state that he or she is a qualified surveyor within the meaning of s.36(4) on any document supplied to the trustees for the purpose of s.36(3).

3. Disposals of land by trustees under s.36(5)
	3.1 Types of disposal affected 3.2 Requirements of s.36(5) 3.3 Who should judge the credentials of an adviser? 3.4 Do the trustees need written advice? 3.5 Considering and acting on the advice 3.6 Security of tenure

	3.1 Types of disposal affected
	The requirements of s.36(5) apply only to the following lower risk transactions:
	to the granting of a lease for a term of seven years or less; and
	where the trustees receive no fine in whole or part consideration for the grant.
	However, if the lease contains an option for the lessee to renew the lease for a further term and the sum of the terms exceeds seven years, the requirements of s.36(3) will apply. The assignment of an existing lease will also be covered by section 36(3) even if was originally granted for 7 years or less, or has 7 years or less to run.

	3.2 Requirements of s.36(5)
	Under s.36(5), before entering into an agreement for the grant of a lease as described above, the trustees must comply with the following requirements. If they do not then an Order from us will be required to authorise the disposal before completion. The requirements state that the trustees must:
	obtain and consider the advice of a person they reasonably believe to have the requisite ability and practical experience to advise them competently on the proposed disposal; and
	decide that they are satisfied, after considering that person's advice, that the terms of the disposal are the best that can reasonably be obtained in the circumstances.

	3.3 Who should judge the credentials of an adviser?
	It is a matter for the trustees to judge whether the person they select to advise them is suitable or possesses the appropriate credentials. The trustees must assess his or her qualities according to the nature and complexity of the transaction.
	We cannot consider the credentials of individual advisers on behalf of the trustees. This is a matter within the trustees' discretion. They must be able to demonstrate that they have considered the matter if called upon to justify their choice of adviser.
	By way of general guidance, we suggest that the trustees retain a person who is a member of some professional body such as the:
	Royal Institution of Chartered Surveyors;
	Architects' and Surveyors' Institute; or
	Institute of Revenues, Rating and Valuation.
	There is no objection to the trustees using a suitably qualified employee of the charity. If a trustee is to be employed and paid for this work then the governing document must contain a suitable professional trustee charging clause.
	The advice we may offer trustees regarding qualifications is not a legal requirement and in the end it is for the trustees to make their own choice of adviser and be prepared to justify their decision should they be challenged about it.

	3.4 Do the trustees need written advice?
	Although there is no statutory requirement for advice obtained from an adviser, as described above, to be in writing, we would advise trustees not to rely on oral advice; this might be misinterpreted and there will be no evidence to produce if they are called upon to justify their decision that the terms of the lease were the best that could reasonably be obtained.

	3.5 Considering and acting on the advice
	Trustees will not have fulfilled the requirements of s.36(5) if they decide to accept the terms of a proposed lease without having considered the competent person's advice. The trustees would be unlikely to be regarded as having acted properly if they act against or ignore the advice of someone more experienced than themselves – see also sections 5 and 6 below. They are advised to keep a written record of the meeting at which the adviser’s report is considered in order to be able to justify their decision if it is called into question. When using a power of disposal, the trustees should exercise the statutory duty of care as set out in the Trustee Act 2000 (see OG 86 B6) where they are required to do so.

	3.6 Security of tenure
	When granting a lease under the requirements of s.36(5), it is important that the trustees obtain an assurance from the charity's solicitor that they will avoid giving the tenant unintended security of tenure which would prevent the trustees taking possession of the property at the end of the term.

4. Disposals of land by way of a mortgage under section 38(3)
	This guidance does not cover disposals by way of a mortgage or charge over land. Information on this topic can be found in OG 22.

5. Third party offers
	Occasionally, where agreement has been reached for a disposal at what is considered to be the open market price, a third party may offer a higher price than the initial proposed purchaser. If this should happen before the vendor and purchaser have entered into a binding contract, the disposing body has no option but to consider the higher offer and the originally intended purchaser may have to increase its offer or lose the opportunity of the purchase. If the offer made by the third party indicates that the property is worth substantially more than was previously believed, it may be appropriate to re-market it for disposal in the normal way.
	The duty of the trustees of the disposing charity is to achieve the best price that can reasonably be obtained. Accepting a higher offer from a third party is effectively gazumping and is a proper practice in these circumstances no matter how unpopular. Although the rules can be relaxed slightly for transactions between charities (see OG 54 B6 section 3), it is still the intention that the disposing charity should receive the current full open market price for its property.
	There may, however, be occasions where the trustees can, on reasonable grounds, properly accept a lower offer, provided that their professional advisers agree with that conclusion. Such cases can arise when the trustees have good reason to doubt:
	the prospective purchaser's ability or intention to complete the purchase; or
	where the purchaser would use the land in a way that could harm the interests of the charity.
	Where they accept a lower price, the trustees must be clear that this is to the overall advantage of the charity. The surveyor or other advisor must be instructed to assess the value of any non-monetary elements in an offer.
	If the professional advisers do not agree with the trustees' decision, the trustees may ask us for an Order under ss. 26 and 36 of the 1993 Act, which we may offer them if we are satisfied with the trustees' reasons. In doing so, they will need to demonstrate to our satisfaction that the potential detriment of selling to the highest bidder outweighs the loss of proceeds represented by accepting a lower offer. This issue is discussed in more detail in sections 38 to 41 of CC28.

6. Trustees' decisions on disposals
	6.1 Trustees taking decisions 6.2 Delegating decisions

	6.1 Trustees taking decisions
	After due consideration of the reports and advice they have received, trustees must be satisfied that the terms obtained for the disposal are the best that could reasonably be obtained, if the disposal is intended as an economic one (ie as distinct from a disposal being made in furtherance of the objects of the charity). It is probably most usual for the governing document to require this decision to be made and minuted at a properly constituted and quorate trustees' meeting. If the governing document allows for decisions to be taken in different circumstances, for example over the 'phone or by other electronic communication, then the trustees can rely on that. It is likely the governing document would contain provisions regarding majorities for decisions taken in this way but, if not, we would expect a majority of the trustees to make that decision.
	CC48 "Charities and meetings" gives useful advice on the subject of meetings and their conduct.

	6.2 Delegating decisions
	It is the practice of some very large charities to delegate the entire conduct of land disposals to a property sub-committee chaired by one of the trustees or to a property department consisting of employees. If trustees wish to delegate decisions in either of these ways:
	there must be a power of delegation in the governing document or they can rely on the power of delegation to an agent as set out in the Trustee Act 2000 (see OG 86 B3). The latter power only applies to investment land;
	the terms of the delegation must be agreed by the trustees, must be set out clearly in writing, and must contain appropriate guidance to the delegate(s) with a view to ensuring that the delegated functions will be exercised in the best interests of the charity (the policy statement described in the Trustee Act 2000);
	the trustees should recognise that they have a duty to keep the performance of the delegates under review. This would normally mean that the progress and outcome of any disposal should be reported back to the trustees as soon as possible.
	We take the view that where trustees have the power to delegate the conduct of a disposal, they can also delegate the statutory responsibility for the consideration and decisions referred to in ss.36(3) and (5). Where this is done by a delegate, he or she will have to make a suitable report to the trustees for the purpose of enabling the certificate under s.37(2)(b) to be properly given by the charity trustees or on their behalf.
	Further information about the delegation of functions to agents under the Trustee Act 2000 is available in OG 86 B3.
	Trustees cannot, of course, delegate execution of any of the legal deeds or documents by which the disposal is effected, except in accordance with s.82 of the 1993 Act, or with the legislation relating to the use of powers of attorney.

7. Disposal of land used for particular purpose(s) (designated land) - s.36(6)
	The requirements for the disposal of designated land are discussed in OG 54 B3.

Glossary of Terms used in this Guidance
	1993 Act
	connected person
	designated land
	exempt charity
	governing document
	land
	Order
	permanent endowment
	Scheme
	trustees

Index to further related information