There are several reasons why a charity may plan to buy or sell commercial property. It may be to seek a permanent and secure location to operate, or to purchase a property for investment. When entering any property transaction, the charity trustees must ensure to comply with the terms of the charity’s constitution as well as statutory requirements set out in the Charities Act 2011.
Daniel Boulton, director at WHN Solicitors and commercial property specialist, outlines several points to consider to ensure that charities comply.
The two types of charity
There are two main types of charity in England and Wales – ‘exempt charities’ and ‘non-exempt charities’. Most charities operating in England and Wales will fall within the category of non-exempt charities.
Non-exempt charities are usually required to register with the Charity Commission and are bound by restrictions on purchasing, selling and mortgaging land and properties. Exempt charities, which for example include museums and higher education institutions, are not subject to the same rules.
Dealing with property transactions for non-exempt charities
The acquisition and disposal of property or the granting of a lease of a property, by a non-exempt charity, will usually require meeting the restrictions of the Charities Act 2011.
To meet these restrictions, a written report from a qualified surveyor will be required providing the market value (i.e. the sale or purchase price or the market rent value of the property). The charity trustees on considering the report must then be satisfied that the terms of the transaction are in the best interests of the charity.
Failure to comply with this process may result in the charity being unable to enter or complete the property transaction unless it obtains a court order.
There is an exemption to obtain a surveyor report if the charity is granting a lease for a term of less than seven years, however, to ensure they are complying with their obligations as trustees, the charity trustees should still obtain advice from a qualified professional to determine the market rent.
The ownership of property for incorporated or unincorporated charities
If a charity is incorporated any property owned by the charity will be held in the name of the charitable company. Charities which are unincorporated do not have a legal identity and cannot therefore hold property in their own name. Any acquired property must be held on behalf of the charity usually by nominated trustees.
In all cases, the trustees must act in accordance with the terms of the trust that governs the charity and must act reasonably and be satisfied the property is appropriate for its intended use and the price or rent payable is reasonable and affordable.
Stamp Duty Land Tax and charities relief
The main tax benefit available to charities in the acquisition of property whether by purchase or by lease is the availability of ‘charities relief’ from Stamp Duty Land Tax (SDLT) or Land Transaction Tax (LTT) in Wales.
Charities relief does not automatically apply. There are certain conditions required to meet to receive the relief, primarily that the property must be used for ‘charitable purposes’ with no tax avoidance intended. If this is the case, there will be no tax payable.
A ‘nil’ SDLT/LTT return is usually still required to be made to HMRC within the specified time which is currently 14 days.
Non-domestic rate relief
Non-domestic rates, which are often referred to as ‘business rates’ are a tax on non-domestic properties to help pay for local council services. These include services like education, social care and waste management.
Owners of commercial properties are obliged to pay these business rates if their properties are vacant for three months or more. This may be problematic for a commercial landlord with a difficult-to-let property. Often to avoid paying these rates, some commercial landlords let their properties to charitable organisations.
This is because there is a potential for non-domestic rate relief of between 80 to 100 per cent when a charity is occupying a property and the property is used wholly or mainly for charitable purposes.
Care must be taken though to make sure the use is ‘mainly or wholly’ for commercial purposes as such term is open for interpretation. Any landlord planning to lease property to a charity should look into the rating issues more carefully and discuss these with the relevant local authority.
How charities have been affected by the pandemic
Economic pressures since the start of the Coronavirus pandemic have had a devastating effect on the charities sector. This is due to a huge drop in charitable fundraising events taking place during lockdown and a subsequent decline in donations. It is also due to a reduced footfall of visitors to commercial premises owned or leased by charities.
Either way the impact on a charity’s finances has been significantly affected. Charity trustees need to be mindful of their trustee duties and their statutory duties under the Charities Act and should review and renegotiate any leases to help with future budgets and charity spending and to ensure that as trustees, they continue to meet their obligations.
Whether you are a landlord looking to lease premises to a charity; a charity looking to acquire, or lease a property; or you are a charity seeking to renew an existing lease – it is strongly advised that you seek expert property advice and specialist charity guidance before making any firm decisions.
Daniel Boulton is a director based at WHN’s Blackburn office. He advises clients on a range of commercial property issues ranging from land acquisitions to negotiating and completing leases for both landlords and tenants. To contact Daniel, call him on 01254 272 640 or email daniel.boulton@whnsolicitors.co.uk.
