|
|
|
|
|
The law |
Refer to a lawyer |
Refer to an accountant |
| |
|
| |
1. Basis on which charity land is held |
| |
The Trustee Act 2000 confers wide powers to deal with land. Many of these powers were first introduced by the Trusts of Land and Appointment of Trustees Act 1996 (TLAT). To understand the extent of the powers available, it is necessary to look at TLAT 1996 and TA 2000 together. |
| |
1.1 "Trust of land"
1.2 Abolition of the doctrine of conversion
1.3 Statutory rights of beneficiaries
1.4 Equity sharing |
| |
|
| |
1.1 "Trust of land" |
| |
The Trusts of Land and Appointment of Trustees Act, 1996 (TLAT) which came into force on 1 January 1997, radically altered the statutory basis upon which charity land is acquired, managed and disposed. It substantially repealed s.29 of the Settled Land Act 1925 ("the 1925 Act") which had provided the statutory framework for the acquisition, management and disposal of charity land generally since 1926. |
| |
TLAT applies only to land which is held on trust. It does not apply to land which is part of the corporate property of charitable companies. |
| |
Almost all land which is held on charitable, ecclesiastical or public trusts is now subject to a "trust of land", as the result of TLAT. This is so, whether the land was held on trust for sale on 31 December 1996, or was deemed then to be settled land by s.29 of the 1925 Act. Any land which comes to be held on charitable, etc, trusts in the future will also be held as a "trust of land". (The exception, is land to which the Universities and College Estates Act 1925 applies, but we are unlikely to be concerned with this.) |
| |
This therefore means that nearly all charity land (except land which is the corporate property of charitable companies) is subject to a "trust of land" and that TLAT 1996, TA 2000 and other statutes which define the powers and duties in relation to a trust of land are relevant to most charities other than companies. |
| |
|
| |
1.2 Abolition of the doctrine of conversion |
| |
Except in relation to the estates of people who died before 1 January 1997, TLAT abolishes the doctrine of conversion under which land held on trust for sale was regarded as personal property rather than real property (s.3). |
| |
|
| |
1.3 Statutory rights of beneficiaries |
| |
Charitable trusts are not regarded as having "beneficiaries" for present purposes, and the occupation and consultation rights which TLAT gives to "beneficiaries" of a trust of land are not relevant to charities. |
| |
Some charities may seem to have an identifiable beneficiary - funds for augmenting the stipend of the vicar of X for example. We may, therefore, expect to receive questions from the public on this point. |
|
|
If the view that a charity cannot have a "beneficiary" for present purposes is challenged, you should obtain legal advice. |
| |
The trust which arises under s.1 of the Reverter of Sites Act 1987 - see OG 27 - (which becomes a trust of land under TLAT) will usually, of course, have a non-charitable beneficiary. However TLAT expressly excludes such a beneficiary from the consultation and occupation rights which it gives to other beneficiaries of non-charitable trusts of land (TLAT Schedule 2 paragraph 6). |
| |
|
| |
1.4 Equity sharing |
| |
The provisions of TLAT affect the trusts created by equity sharing agreements between charities and individuals: |
| |
- from 1 January 1997 the trusts created by such arrangements are trusts of land not trusts for sale; and
|
| |
- the non-charitable beneficiaries of such trusts have certain consultation and occupation rights in relation to the land held in the trust.
|
 
| |
2. Statutory powers to acquire land |
| |
2.1 The powers
2.2 Statutory duty of care
2.3 What may be acquired
2.4 What may not be acquired |
| |
|
| |
2.1 The powers |
| |
Section 8 (1) of the Trustee Act 2000 gives trustees the power to acquire freehold or leasehold land in the United Kingdom: |
| |
|
| |
- for occupation by beneficiaries; or
|
| |
|
| |
As indicated in section 1.3, charities do not have "beneficiaries" for present purposes. Charities can acquire land "for any other reason" so long as this will be in the interests of the charity. |
| |
This power is generally available to charity trustees, unless it has been restricted or excluded by express constitutional provision – section 9(b) of the Act. Subject to this, all trustees of charitable trusts now have a statutory power to buy land for any of the purposes listed above. |
| |
The statutory land acquisition powers are not available to charitable companies, except in relation to funds which are held by the company on a trust. However, charitable companies are usually authorised by their governing documents to acquire land. |
| |
|
| |
2.2 Statutory duty of care |
| |
It is important to remember that the exercise of the statutory powers to acquire land is subject to the duty of care set out in section 1 of the Act and explained in detail in OG 86 B6. Where land is being acquired as an investment, the duties in section 4 (standard investment criteria and review duty) and 5 (advice) apply, because these apply to any power of investment. The statutory duty of care can be modified by express provision in the governing document in relation to the use of the power. |
| |
|
| |
2.3 What may be acquired |
| |
The powers are wide enough to authorise the acquisition of any estate, interest or charge in, or over, land in the United Kingdom, provided that – if the land is in England and Wales - it is within the meaning of "legal estate" as explained in s.1 of the Law of Property Act 1925. There is a corresponding limitation in relation to land in Scotland or Northern Ireland. |
| |
- freehold and leasehold land;
|
| |
|
| |
|
| |
- charges over land by way of security for money lent by the charity,
|
| |
are all capable of being within the scope of the power. |
| |
Interests which either: |
| |
- do not last indefinitely (eg, they are not freehold); or
|
| |
- are not for a stated fixed period of time (eg, as would be the case in a lease),
|
| |
cannot be legal estates. |
|
|
Legal estates must normally be transferred or created formally by deed. If you are asked for a view as to whether the new power will authorise the acquisition of a particular interest in land, and you are doubtful whether that interest will be held as a legal estate, you should obtain legal advice before replying. |
| |
|
| |
2.4 What may not be acquired |
| |
The powers do not authorise the acquisition of interests in land which are not legal estates. But this may be authorised under the general management power if the acquisition is connected with the management of land which is already held in trust. For example, the acquisition of an option to purchase neighbouring property may be authorised by the general power in this way. |
| |
3. Statutory powers to manage / dispose of land |
| |
3.1 Powers of an absolute owner
3.2 Statutory duty of care
3.3 Borrowing
3.4 Doubts about borrowing powers
3.5 Charging permanent endowment land
3.6 Unsecured loans
3.7 Circumstances in which we may make an Order
3.8 Purchaser protection
3.9 Transfer of property held by nominee |
| |
|
| |
3.1 Powers of an absolute owner |
| |
Having acquired land a trustee must be able to deal with it effectively. All trustees of land have the powers, for the purpose of exercising trustee functions, of an absolute owner in relation to the land. Powers of an absolute owner include power to borrow money and charge land by way of security for any borrowing, so long as the borrowing is connected with the function of acquiring/managing land. The powers also include power to grants rights over the land, own it jointly with other people and to dispose of it. |
| |
The statutory land management and disposal powers apply generally to any trust of land and can, in the case of charities, only be limited or excluded by primary legislation. The object of this limitation on the right of charity founders to exclude or restrict powers of land management and disposal is to prevent them from depriving their trustees of proper powers of management, which is considered to be contrary to public policy. The wide powers of management can, however, be made exercisable subject to consents (s.8(2) TLAT). |
| |
These wide management powers replace the prescriptive statutory powers which were available to charity trustees of land under s.29 of the 1925 Act, or to trustees for sale, as the case may be. For example, trustees now have a general power to lease the land which they own. The limitations in the leasing powers under the 1925 Act relating to the length of the term of permitted leases, etc (s.41-48 of the 1925 Act) no longer apply. |
| |
The new powers may be exercised only in furtherance of the objects of the charity. For example, if, under the old law, we would have had to make a Scheme to authorise a particular land disposal because that land had been given on trust for use for a specified charitable object, we still have to make a Scheme to authorise such a disposal. |
| |
The statutory powers of land management and disposal may, as indicated above, be restricted or excluded by primary legislation. This means, for example, that the exercise of the new powers of land disposal will remain subject to the controls in Part V of the 1993 Act where they apply. |
| |
Subject to these points, the new powers of management extend to funds held with the trust of land for the repair, maintenance, etc, of that land. |
| |
|
| |
3.2 Statutory duty of care |
| |
It is important to remember that the exercise of the land management and disposal powers is subject to the statutory duty of care set out in section 1 of the Act and explained in detail in OG 86 B6. |
| |
The powers of management and disposal in the Act and in the TLAT are the same. Only for the following purpose is the distinction relevant. |
| |
Where the TLAT powers of management and disposal are used, the statutory duty of care in the Trustee Act 2000 will apply and cannot be excluded. Where Trustee Act 2000 powers of land management and disposal are used, the statutory duty of care will apply, but can be excluded. |
| |
The TLAT power will be the only one available: |
| |
- where an attempt has been made by the founder of the charity to restrict or exclude the statutory powers;
|
| |
- where the land was acquired before 01.02.01.
|
| |
|
| |
3.3 Borrowing |
| |
The wide powers of management will effectively give trustees a power to: |
| |
- borrow for any purpose which relates to the repair, maintenance, improvement etc, of the buildings and land which they own, or to the purchase of land; and
|
| |
- charge the land as security for that borrowing (subject to s.38 of the 1993 Act).
|
| |
This replaces the limited power in s.71 of the 1925 Act and is applicable both to: |
| |
- land already in the ownership of the charity trustees; and
|
| |
- land which is being bought with the assistance of a loan.
|
| |
|
| |
3.4 Doubts about borrowing powers |
| |
Experience suggests that there will be cases where banks and other lenders will be unconvinced that the new statutory powers do in fact authorise borrowing and the giving of security because of the absence of any explicit reference to it. However, an "absolute owner" undoubtedly has power to borrow money on the security of his property. Doubters may be referred to paragraph 10.8 of the Law Commission Report on Transfer of Land and Trusts of Land (No 181), published in June 1989. This sets out the policy of the new land management powers. |
| |
For more information on this subject, see OG 22 B1, section 8. |
|
|
If lenders persist in the view that TLAT does not give power to borrow and charge property, you should obtain legal advice. |
| |
|
| |
3.5 Charging permanent endowment land |
| |
The new powers are wide enough to permit the charging of permanent endowment land to secure the borrowing of funds not only for a "capital" purpose such as improvement but also for an "income" purpose, such as repair and maintenance of the trust property. The requirements of s.38 of the 1993 Act must be complied with in connection with the charging of the property, but it is not necessary for us to make a s.26 Order. The fact that permanent endowment land has been used to secure a borrowing for an income purpose does not alter the fact that the repayment of the borrowing should be funded from income and not from permanent endowment. |
| |
|
| |
3.6 Unsecured loans |
| |
The power to borrow for any purpose relating to the repair, maintenance, improvement etc of the buildings and land which the charity trustees own also arises in the case of unsecured loans. Our view is that this is within the land management powers. |
| |
This view is not accepted by all the corporate lenders which charity trustees may approach for finance. NatWest Bank, for example, has indicated that it does not accept that the statutory powers give trustees a power to borrow on an unsecured basis. It also takes this view if the loan is secured, using property which does not belong to the charity, such as, for example, the trustees’ personal property. However, it may be prepared to accept in the circumstances of the case that the charity trustees have an implied power to borrow money. See also OG 22 B1 section 5. |
| |
In fact, the lender may have legitimate concerns where any proposed loan is not secured on land belonging to the charity. These concerns arise from the supposition that trustees may not have an express power to borrow – whether with or without security – notwithstanding the new statutory provisions. See OG 22 B1 section 5. If trustees do not have this power, then they may not be entitled to indemnify themselves out of trust property for the repayment of the loan and the payment of interest. In that case, the lender would also not have the right, which it normally would have if the trustees were borrowing within their powers, to recover the repayment of the loan and the payment of interest out of the trust property. OG 22 B10 explains in more detail the circumstances in which trustees can properly repay unsecured loans from their charity’s assets. NatWest Bank have indicated that where they are not prepared to rely on the existence of an implied power to borrow, in order to protect their interests, they will ensure that the charity trustees provide a reasoned argument to us, justifying why we should be prepared to grant an Order to authorise the borrowing. We should be prepared to consider such an approach whatever the identity of the lender. |
| |
|
| |
3.7 Circumstances in which we may make an Order |
|
|
We are of course reluctant to make an Order authorising a borrowing unnecessarily. If there is any doubt as to whether it is appropriate to grant an Order, you should obtain legal advice. |
| |
We should not, however, allow a charity’s interests to be harmed by any difference of view between the charity’s lender and ourselves over the need for an Order. Where the circumstances of the case indicate that the matter is genuinely urgent, we should be prepared to make an Order for the avoidance of doubt if agreement cannot quickly be reached. If there is persistent disagreement on the issue with a particular lender, caseworkers should consider whether the disagreement should subsequently be raised between the Commission and the lender at a policy level. |
| |
|
| |
3.8 Purchaser protection |
| |
The purchaser protection regime in TLAT (s.16) does not apply to charity land transactions. The existing regime will continue to apply, that is, ss.37 and 39 of the Charities Act 1993. Where those sections do not apply, the relevant parts of s.29 of the 1925 Act are preserved. (Schedule 1 paragraph 4(1) and (2) of TLAT). |
| |
|
| |
3.9 Transfer of property held by nominee |
| |
The power in s.29(5) of the 1925 Act for charity trustees to act in the name, and on behalf of, a nominee when disposing of land (including creating leases) is preserved (Schedule 1 paragraph 4(3) of TLAT). |
| |
4. Power to insure property |
| |
Section 34 of the Act creates a new power to insure property (by amending the existing power in section 19 of the Trustee Act 1925). |
| |
The original power in the Trustee Act 1925 was limited to cover against loss or damage by fire and to three-fourths of the full value of the property. TLAT removed the fire limitation, and included a power to insure land and buildings within the general powers of management conferred by the 1996 Act (and as a consequence limited the continuing scope of section 19 to assets other than land and buildings). The new power effectively replaces all these provisions with a clear general default statutory power for all trustees to insure trust property as if they are absolute owners. |
| |
The new provisions confer a power to insure but do not impose a duty to do so. However, the trusts of some charities do impose a duty to insure trust property; such a duty is not, of course, overridden by the statutory power. The statutory power is to insure trust property against the risks of damage or loss; it does not authorise the taking out of other forms of insurance eg trustee indemnity insurance. |
| |
Additionally, trustees will (subject to any indication to the contrary in the trust instrument) be subject to the statutory duty of care when exercising a power to insure (whether under the Act or when exercising a power in the governing document). This duty will apply to the selection of an insurer and the terms on which the insurance cover is taken out. The statutory duty of care is considered in more detail in OG 86 B6. |
|