Sharing your land with third parties - a charity law perspective

Sharing your land with third parties – points to consider
  • Still undecided about what to do with that piece of surplus land?
  • Been approached by a third party with ideas about how they could use your land?
  • What about a collaboration with a third party which will include use of either your or their land?

If so, then there are a number of points you need to consider from both a property and charity law perspective.

The property perspective – how will the land be used?

From a property perspective, the key question to answer is “how will the land be used?” as this will inform which legal documents need to be put in place.

To answer this question, you need to think about: 

  • What land will be used? You should decide what land you are happy for the “other” party to use – this could be a room or floor of a building, a whole building or some outdoor space (or a combination of all three) – and whether this use is to be exclusive to the “other” party or shared with you (and/or others). In addition, you also need to consider whether any rights are needed in order for the other party to use the relevant piece of land e.g. access rights from the road, rights to other communal areas (e.g. toilets, kitchens), utility services etc. You also need to consider whether the same bit of land will be used for the duration of the arrangement or whether you want to be able (or if it is appropriate) to relocate the other party to another area at your discretion e.g. change the room they can use.  
  • How long will the land be used for? Once you have identified the land, you need to decide how long it can be used for – is it a fixed period of time, do you need to include rights to end the arrangement early (e.g. break rights) or will the arrangement be on a rolling basis until it is terminated?
  • What will the land be used for? You will need to agree what the land can be used for and how that will impact on your use of the site (from both a management perspective and also delivery of your own charitable objects). You should also consider whether the use will need planning permission or if it will impact on any restrictions already relating to the land (e.g. restrictive covenants).
  • How much will it cost? Once you have answers to questions 1-3, you need to agree how much you should charge for the use of your land. Charities are generally under an obligation to obtain the best terms they can (see section below on “best terms”) and so a charity should take advice on the appropriate market rate for the arrangement.

Based on the answers to the above questions, we can advise on which property document is most appropriate to use.

Broadly, if the other party will have exclusive use of a defined area of land for a fixed period of time, and especially where rent/periodic payment is involved, then a lease will usually be the most appropriate document.  If the parties want to enter into a more flexible arrangement – for example if the hours of use will be ad hoc and the land being used may change, then a licence agreement may be more appropriate.

If for whatever reason you are happy for the arrangement to be permanent then you may wish to consider transferring ownership of the land to the other party (though you may want then to think about whether you wish to make sure it is only used for a use you approved, and/or consider if it was right for you to get some “clawback” of value if the other party later sold the land as opposed to used it for the use transferred it for.

The charity perspective - “Best terms”?

From a charity law perspective, you need to consider the status of the “other” party.

A charity has a special status and the trustees are obliged to act in the best interests of the charity when making any decisions – this includes any decisions relating to the charity’s property and its use.

Where a charity is “disposing” of land - which includes selling land or granting a lease - then the usual expectation is that the charity is obliged to obtain the “best terms” reasonably obtainable (as determined by a qualified surveyor). This often (but not always) means best price.

What if the “other” party is a charity too? 

There is an exception to this general rule, which is where the disposal is made to another charity which has compatible charitable objects. Provided both charities have compatible charitable objects then the disposal may (but does not have to) be on terms which are not the best that could reasonably be obtained.  

So if, for example, a religious order has wide reaching charitable objects which include furthering education and is approached by a school asking to use part of the order’s land for playing fields – then, provided the school is a charity and has objects which align with the religious order’s charitable objects, the terms of the arrangement may not need to be for the “best terms” : here the religious order may well have greater flexibility about how the school occupies the land, for example by charging a lower rent.

However, if the same religious order is approached by an animal charity wanting to use the land to house rescue animals, then it is likely that the terms of that arrangement must be on the “best terms” reasonably obtainable as the charities do not have compatible charitable objects.

Summary

Both parties need to be clear and agree on the parameters of the use of the land. If you are approached by someone asking to use your land, then we recommend that you obtain answers to the questions listed in this article, so the trustees can assess whether it is something they are willing to consider.  It is also an important part of stewardship of the charitable property assets to have clear record of the basis on which third parties are using the charity’s land.  We know for experience how often auditors - checking charity’s accounts - pick up on third party users and flag to trustees the need to regularise use. This avoids unintended and avoidable confusion or tension between what are usually friendly parties.  But it can also be invaluable in flushing out and avoiding the charity suffering from less well intentioned third parties, intent on taking advantage of the charity’s naturally generous nature.

If you are interested in further information on these issues please contact the Stone King Charity Property Team and  in particular the author of this note Kathryn Williams. If you are interested in how to manage your property in these uncertain times (from a legal, financial and surveying perspective) then Stone King LLP, Gerald Eve LLP and Buzzacott recently hosted a webinar on this topic which you can watch here.

The law and practice referred to in this article or webinar has been paraphrased or summarised. It might not be up-to-date with changes in the law and we do not guarantee the accuracy of any information provided at the time of reading. It should not be construed or relied upon as legal advice in relation to a specific set of circumstances.

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