Divisional responsibility

For action:

Charity Support Division

For information:

Investigation Division
Registration Division

1. Issue
2. Our Policy
3. The legal position
4. Points to take into account when considering a proposed grant of a lease by a local authority as charity trustee of the freehold to itself in its corporate capacity
5. Ensuring that the advice is independent
6. Granting leases to the local authority as trustee

Meaning of expressions - list of Glossary terms used in this Guidance
Index to further related information

1. Issue

Occasionally a local authority will be the sole trustee of a charity which owns land. The question may arise as to whether it can grant a lease of some of that property to itself in its statutory capacity or vice versa.

2. Our Policy

In considering this issue we must consider whether such a proposal would be allowable in view of the principles established by the Courts in Rye v Rye (1962) AC 496. If it is allowable we must then approach the matter in the same way as any other proposal to lease charity property to a connected person.

However we also should bear in mind that what is most important is not simply the process but whether or not the transaction is in the interests of the charity rather than those of the local authority.

Caseworkers should know the legal basis upon which these proposals are put forward and the criteria for considering whether or not our consent is needed. However it is up the charity's legal advisers to put together the conveyancing arguments and to convince our advisers that they are relying on a suitable authority.

3. The legal position

3.1 Rye v Rye: Individuals cannot lease their own property to themselves
3.2 Ingram v IRC [1999] 1ALL ER 297: Individuals may lease their own property to their own nominee

3.1 Rye v Rye: Individuals cannot lease their own property to themselves

The case of Rye v Rye establishes the rule that no one person can grant themselves a lease of their own property. In that specific case however the leasehold and freehold interests were both held for the private benefit of the same individual: neither of the interests was held on trust. The principles of that case are not identical to those that arise with a charity. There may thus be some doubt as to whether the arrangements at section 1 above would in fact be prevented by this case. The Court nonetheless found the concept of someone making themselves their own tenant defective.

In this context we should therefore seek from the legal adviser to the charity the grounds for considering why the proposed lease is acceptable despite the difficulties which the Courts identified with such a concept.

If this view is continued we should treat the proposal in line with the advice set out in sections 4 and 5 below

3.2 Ingram v IRC [1999] 1 ALL ER 297

It may be that the local authority concerned may seek to avoid the objection in Rye v Rye by leasing the charitable property to a nominee acting for the local authority in its statutory capacity. The case of Ingram v IRC established that a lease by a person to a nominee for himself is not prevented by Rye v Rye. A local authority as charity trustee could in principle grant a lease of charity property to a nominee for itself in its statutory corporate capacity so long as:

• it is within its powers as trustee of that charity to grant this type of lease; and also

• a local authority under local government law is able to hold property in its statutory corporate capacity in the name of a nominee.

Again we should clarify the basis on which the charity believes it is entitled to make this kind of disposition.

Such a lease is a disposition within the meaning of s.36(2)(a)(ii) of the 1993 Act and requires the authority of an Order. The situation is exactly the same as where an individual charity trustee grants a lease to himself as an individual.

The guidance set out in sections 4 and 5 below is relevant when considering such a proposal.

4. Points to take into account when considering a proposed grant of a lease by a local authority as charity trustee of the freehold to itself in its corporate capacity

The first point to establish is whether the charity has a sufficient power to dispose of the property in this way.

If such a power is available caseworkers will then need to assess why it is necessary to grant such a lease.

We will need to be satisfied on the following points before we can make the required Order under s.36(1) of the 1993 Act:

• why the property in question is not being used (or is not going to be needed) for the purposes of the charity;

• why the interests of the charity will be better served by leasing rather than selling the property;

• whether there was any alternative to letting the property and if so why it had been rejected;

• why precisely the local authority wished to take a grant of the lease for its statutory purposes.

If it is clear that there are good reasons in the interests of the charity why the lease should proceed in principle caseworkers will then need to be satisfied that a report has been properly drawn up in accordance with the requirements of s.36(1). We should usually insist that the charity properly advertises the proposal to grant a lease unless there are clear reasons in the interests of the charity why it should not do so.

Caseworkers should pay particular attention to the surveyor's recommendations to advertise the property in order to test the market price. In particular if the surveyor recommends that the proposed lease should not be advertised we will need to be wholly satisfied that:

• there are good reasons for this; and

• it is in the best interests of the charity not to do so.

If we are not satisfied that the transaction is in the interests of the charity we will simply refuse to make the Order.

5. Ensuring that the advice is independent

It is inevitable that a conflict of interest will be present in such a transaction. Where this conflict of interest is significant (because for example of the importance of the land in question to the achievement of the Council’s manifesto objectives) caseworkers should ensure particularly that the advisers are acting on behalf of the charity. In all cases we should expect that the charity will receive its own independent legal advice from qualified professionals who are not connected with the local authority. If caseworkers are not entirely convinced that:

• these conditions are satisfied; or

• the proposals in the surveyor's report are in the best interests of charity

we should consider whether we should request a report from the District Valuer.

In the most sensitive situations where for example:

• the land is of significant value; and

• a decision not to grant the lease would have a significant and adverse impact on the ability of the local authority to carry out its policies; and

• the benefit to the charity is difficult or impossible for us to judge on the basis of the evidence supplied

we should consider asking the local authority to stand down as trustee to be replaced by independent trustees. This may in practice be difficult to achieve and an alternative may be to appoint as a supportive measure an Interim Manager to take responsibility for the decision on this particular matter.

6. Granting leases to the local authority as trustee

It also follows that a local authority in principle could grant a lease of its corporate property to a nominee for itself as trustee of a charity. The charity would have to have or be given the power to hold the lease in the name of a nominee as there is at present no general power to do so.

Caseworkers should be satisfied that the proposals are in the best interests of the charity.

The following words and phrases are defined in the Glossary of Terms:

•
•

the 1993 Act
trustees

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