What the Charities Act 2011 means for your property decisions

The Charities Act 2011 sets the legal framework within which charity trustees must make decisions, including taking a lease of property.

While the Act’s most detailed property rules focus on disposals of charity land (such as granting a lease, assignment or surrender), there are important duties and safeguards to consider when you acquire a lease too. 

When a Charity takes a Lease (as Tenant):

• Trustees’ powers and purposes
  You should ensure your governing document allows you to acquire and occupy property. Most charities have this power, but it should be exercised to further your charitable purposes or as a prudent investment.
• Trustees’ duties and decision-making
  Trustees must act only in the charity’s best interests, manage conflicts of interest, and take appropriate advice. For a lease, that usually means taking professional property and legal advice on value, liabilities and risk.
  
  It is important to record the decision properly: the benefits to beneficiaries, financial implications (rent, service charge, dilapidations), and why the lease is the best option compared with alternatives.
• Connected persons and trustee benefit
  If the landlord is a trustee or a “connected person” to a trustee, paying rent or a premium can amount to a trustee benefit. You must have proper authority (in your governing document, by law, or by Charity Commission order) and robust conflict management before proceeding.
• Financing, security and deposits
  If you grant a mortgage or charge over charity land (including a leasehold) to secure borrowing or obligations, the Act requires trustees to obtain and consider written advice and to pass a specific resolution before entering into the security. The mortgage document must include a trustee certificate in prescribed form. You should plan this early if you need fit-out finance.
• Due diligence and practical protections
  Make sure the lease terms are fair and you have sought advice from a professional adviser.
  
  You should budget for rates, insurance, utilities and reinstatement. Consider whether the Landlord has included sustainability clauses and payment towards energy performance, particularly for older building.

When a Charity is granting a lease (as Landlord)

• Why this is different 
  Granting a lease is a “disposal of charity land”, so the Act imposes additional procedural safeguards to protect charitable assets over and above general trustee duties.
• Pre disposal steps: advice and best terms
  Trustees must obtain and consider written advice from an appropriate designated adviser before agreeing terms. The adviser’s report typically covers value, marketing, recommended terms (including rent, rent free, repairing liabilities, incentives and break rights) and any steps to get the best outcome.
  
  Trustees should be review the advice and be satisfied that the proposed lease achieves the best terms reasonably obtainable in the circumstances, having regard to the advice and the charity’s objects (e.g. investment return vs. mission compatible occupation).
• Marketing and process
  Unless the adviser recommends otherwise, appropriate marketing should be undertaken to test the market and support the “best terms” conclusion. Keep an audit trail of interest received, bids, and reasons for selecting the preferred tenant.
• Connected persons and Commission consent
  A grant to a connected person (including a trading subsidiary or a trustee) generally requires Charity Commission consent, even if terms are at market rent. Make sure you build in time for consent and document conflicts management.
• Short leases and exceptions
  Some short occupational leases (typically under 7 years) benefit from streamlined advice requirements and this can be provided 'in-house' from someone with the appropriate experience, but they still fall within the disposal regime.
• Required statements in the lease
  The lease (and any agreement for lease) should contain the required Charities Act statements/certificates confirming compliance or setting out the relevant exception. 

How we can help

If you are planning to enter into a lease, you may want support with:

• Structuring the transaction and ensuring you are complying with the necessary obligations specific to your transaction
• Advising you on the right reports under the Act
• Managing conflicts and documenting trustee decisions
• Assist in negotiating terms to evidence "best reasonably obtainable" terms.

If you are planning to sell, lease or otherwise dispose of charity land in England and Wales, we can help to ensure you are compliant with the Charities Act 2011 and the Charity Commission's published guidance. 

For more information please contact Sarah Outram in our Commercial Property team.