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June 11, 2020

Is there a trust and does it matter?

Is there a trust and does it matter?

In May, a case came before the High Court which involved a piece of law known by few but which will be of interest to many – the Places of Worship (Enfranchisement) Act 1920. Doesn’t sound particularly interesting? Perhaps, but read on.

The church entity that was involved is a private company (limited by guarantee) and also a charity.  In 2015, it entered into a 30-year lease of premises that were previously used as a workshop.  The church spent a considerable amount of money on refurbishing the premises, including installing a new roof. In order to protect the long-term security of the church and the church community, a claim was brought by the church company for a declaration that it had the right to enfranchise its premises (i.e. in this case, the right to acquire the freehold).

Under Section 1 of the 1920 Act, “Where premises held under a lease to which this Act applies are held upon trust to be used for the purposes of a place of worship…whether in conjunction with other purposes or not, and the premises are being used in accordance with the terms of the trust, the trustees…shall have the right…to acquire the freehold…”.  Section 1 later states that this right applies to leases granted for life or those for a term of 21 years or more. “Place of worship” within the Act means any church, chapel, or other building used for public religious worship, and includes a burial ground, Sunday school or caretaker’s house. The provisions also apply to premises held upon trust to be used (in connection with a place of worship) for the purposes of a minister’s house.

The meaning of “held upon trust” was critical to the outcome of the case. The freeholder landlord (the Phelans) did not want to lose the freehold of the premises. They argued that the 1920 Act requires a “trust” in a strict sense, that is, in the sense of a charitable trust constituted by a trust deed. There was no dispute about whether the church company held its assets on trust in the strict sense; it did not - the church company was the beneficial owner. However, the church company argued that, by virtue of the fact it was a charity, it held the property upon trust to be used for the purposes of public worship, and this was enough for the provisions of the Act to apply.

The Judge found in favour of the church company, deciding that a strict trust is not required – it was held that the legislation should not be constrained in this way and, if it was, an irrational distinction would arise in which incorporated entities would be unable to make use of the Act. Due to the restrictions imposed by the Memorandum and Articles of the church company, the company’s assets could only be used to promote its charitable objects; these were (for the benefit of the public) broadly speaking to advance the Christian faith, relieve sickness and financial hardship and advance education.

However, the Act also requires the leased premises to be “held upon trust to be used for the purposes of a place of worship”. On this point, the user clause of the lease restricted the church company to only using the premises as a church and community centre with ancillary offices – they could not be used for other purposes without the landlord’s consent.

So, taking the Memorandum and Articles of the church company and the user clause of the lease together, Section 1 of the Act came into play. The Judge concluded that “The Church's constitution provides a "trust" of a kind contemplated by the legislation, and the Premises are in fact being used in accordance with the terms of that trust, as required by s1(1)”. Interestingly, the Judge also stated that the church company “holds the Lease as one of its assets, and as a charitable company it is in a position analogous to a trustee in respect of those assets”.

The case highlights the existence of a little-known piece of legislation and provides, in the context of the Act, some interesting points and reminders about how charitable companies hold and deal with assets. It remains to be seen whether this will lead to further cases in connection with the Act, but it is clear that each situation will turn closely on the constitution of the tenant entity and the provisions of the relevant lease.