Top tips for charities acquiring land

This article looks at the key factors for trustees to consider when they are acquiring land (whether freehold or leasehold) for a charity.

Power to acquire land

Where a charity’s power to acquire land is set out will depend on the type of charity. Generally speaking, if you are dealing with an unincorporated charity the power will be a statutory power, provided that the land being acquired will be used for either the charity’s purposes or for investment purposes. If you are dealing with a charitable company, the power is usually contained in the charity’s Articles of Association and Memorandum.

Regardless of the type of charity, the trustees need to ensure that they have the power to acquire the land for the intended purposes. This should be considered before the acquisition process begins.

Charities can (subject to the specific powers each charity has) acquire land for investment purposes (i.e. an income producing investment), for carrying out the charity’s own purposes, or a mixture of both.

Trustees’ duties

One of the overriding duties for trustees is to ensure that they carry out the trust in accordance with its terms. In addition, trustees’ general fiduciary duties and duties of care and prudence also apply. Therefore, trustees must ensure that:

• The acquisition fits with the charity’s strategic view. For example, if the property is being acquired for investment purposes it should be an appropriate property to produce income, in a suitable location and obtained at a reasonable price.
   
• They obtain legal advice and undertake due diligence on the property. For example:
  • Checking that the property can be used for its intended purpose and that there are no restrictions preventing its intended use;
  • Carrying out searches e.g. to establish whether the property is connected to mains water and sewer services;
  • Checking that the property has the necessary planning permissions; and
  • If the property being acquired is leasehold, the lease terms should be reviewed to confirm that they are reasonable.
     
• They obtain valuation advice as they need to be satisfied that the property is being acquired at a reasonable price and the charity is not overpaying. The trustees should also be satisfied that the charity can afford the acquisition. For example, if the charity is acquiring a lease they will need to ensure that the charity can afford the rent for the duration of the lease term.
   
• Indeed, the Charity Commission strongly recommends that trustees acquiring land obtain a report from a qualified surveyor detailing the terms of the acquisition. Only if the trustees are satisfied with contents of the report (and the key terms of the acquisition) should they proceed. The Charity Commission recommends that the surveyor should be instructed to act solely for the trustees. Examples of the key points that the report should cover include:
  • A description of the land being acquired
  • Valuation of the land
  • A recommendation (with reasons) on whether the acquisition is in the charity’s best interests
  • Details of any repairs and alterations to be carried out, together with the estimated cost
  • Other key factors for the trustees to consider, taking into account the circumstances of each transaction. For example, any restrictive or other covenants that the land is subject to.
     
• If the charity is acquiring the land by means of a loan, the trustees should ensure that the charity is obtaining the best borrowing terms that can reasonably be obtained. This means comparing key terms (for example, interest rates) across a number of different providers.

The trustees should also ensure that the charity can afford the loan out of its resources and that it has forecast and budgeted for any rise in interest rates during the term of the loan.

The above is a summary of the key points that trustees will have to consider when acquiring land. There are of course other factors that trustees may need to consider on a case by case basis. For example, if a charity is intending to acquire land when it has no power to do so then it will need to consider applying to the Charity Commission for an order allowing it to acquire land. Stone King has a wealth of experience and expertise in dealing with all types of property acquisition, as well as other property matters. Please do contact us to find out how our knowledge and experience can suit your particular needs.