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Disposal of property

The Charities Act 2011


Purchasing a Property:



The power to dispose of a property:


There is no requirement to follow a statutory procedure when a charity is acquiring land. However, before any action is taken, the trustees should always make sure that they have the requisite authority to act and the charity has the power to acquire the land, either by freehold or leasehold.

Trustees have a duty to act as prudent men and women of business, and must consider whether it is in the best interests of the charity to buy the property on the information they have available to them. This duty of prudence means trustees cannot take the type of risks with charity money that they would be prepared to take with their own. The trustees could be held personally liable if they act in breach of this duty and the charity suffers loss as a result.

The role of the Charity Commission:


The Charity Commission publishes guidance on how trustees can ensure they comply with their duties. Trustees are strongly encouraged to take advice on the acquisition from a professional with the required skills and expertise, and commission a surveyor’s report. This should mean the trustees can satisfy themselves of the following:

  • The charity is getting reasonable value for money considering the type of land and the nature of the property right acquired (freehold or leasehold).
  • The property is in a state of good repair and reasonably fit for the purpose the charity intends.
  • They understand the legal implications of acquiring the land, for example where there are planning restrictions.      
    
If trustees are purchasing a property for investment purposes, they will also need to consider its ability to generate income from rent and any potential for future price growth.  

For further information from the Charity Commission, see their guidance note CC33 or follow the link below:
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/442186/cc33_lowink.pdf


Mortgaging


Section 124

This section prohibits land held by, or in trust for, a charity being mortgaged or charged without an order from the court or the Charity Commission. However, an order is not required if the charity trustees obtain and consider written advice from a ‘suitably qualified person’ on the terms of the mortgage before entering into it.

To satisfy s.124, the advice must be given by someone who:
  • The charity trustees reasonably believe to be appropriately qualified by reason of their ability in and practical experience of financial matters; and,
  • Has no financial interest in the loan, grant or other transaction that is the subject of the advice.
  • This means an employee of the charity could provide the written advice if they have the necessary levels of experience and expertise.  

If the legal entity buying your property is a charity, then you should ensure that you are complying with any sections of the Charities Act which could be relevant. When trustees will be relying on funding for the purchase you should speak to the lenders involved before engaging in lengthy negotiations as some grant-making bodies will only offer assistance if the property is freehold or a leasehold of at least 25 years.


Disposing of Property


Section 117

Section 117 of the Charities Act 2011 takes effect when a charity disposes of an interest in land. The type of transactions falling under the scope of s.117 include conveyances and transfers, grants of leases, surrender of leases, and grants of easements and rights of way. Section 117 prohibits these transactions without an order being made by the court or the Charity Commission.

However, you can avoid the requirements of this provision so long as you follow the statutory procedures detailed in either s.119 and s.120, depending on which sort of transaction you are undertaking. Section 120 applies when the disposition is a lease of 7 years or less whereas s.119 applies to all other dispositions of land.

Section 119

This requires charities to:
  • Obtain and consider a written report on the proposed disposition from a qualified surveyor instructed by the trustees and acting exclusively for the charity. The qualified surveyor must be a fellow or professional associate of the Royal Institution of Chartered Surveyors and have ability in, and experience of, valuing land that is the same kind of land and in the same area as the land being disposed of. The report must contain the information and deal with matters that are prescribed by regulations. The applicable regulations are the C(QSR)R 1992 and can be found here: http://www.legislation.gov.uk/uksi/1992/2980/made.
  • Advertise the proposed disposition for such period and in such manner as the surveyor has advised in their report (unless the report states that it would not be in the best interests of the charity to do this).
  • Decide that they are satisfied, having considered the surveyor's report, that the terms on which the disposition is proposed to be made are the best that can reasonably be obtained for the charity.

Section 120

This requires charities to:

  • Obtain and consider advice on the proposed disposition from a person who is reasonably believed by the trustees to have sufficient ability and practical experience to provide them with competent advice.
  • Decide that they are satisfied, having considered that person's advice, that the terms on which the disposition is proposed to be made are the best that can reasonably be obtained for the charity.

Unlike s. 119 there is no requirement for the advice to be given in writing or the person advising the trustees to be a qualified surveyor. However, in practice, a surveyor may be the best type of person to advise the charity.

The steps in s.119 and s.120 must be taken before the charity trustees enter into any agreement for the sale, lease or other disposition of the land.






Legal Property Investigations and Searches


Land searches to always be taken


1.    Local Land Charges Search


A local land charge search will identify all the local land charges registered in the register affecting the property. This is important as liabilities imposed by local land charges are likely to be significant. If the search reveals a local land charge, you will need to request a copy of the charge from the local land charges department, for which a fee is payable.

2.    Local Authority Search


Replies to the local authority search will reveal important information, problems or issues concerning the property and its immediate surroundings to be resolved prior to purchase, for example, the LLC1 search will identify any listed buildings, conservation areas, future developments and so on, within the surrounding area. The CON29 deals with a variety and enquiries such as road proposals, advertisements, pipelines, urban development area, public pathways etc. 


Pre-Contract Enquiries

Pre-contract enquiries are the questions that the Buyer raises of the Seller. Depending on the results of the enquiries it may ultimately affect the Buyer’s decision on whether or not to proceed with the purchase.


Official Copies of the Title and Title Plan

In general, the Seller will provide official copies. You will need to obtain additional official copies if those supplied are out of date or incomplete. Official copies show defects in title and other issues that might make the property unsuitable for you. If there are such defects in title, additional enquiries need to be raised with the Seller.


Index Map Search

The Search will reveal any of the following entries affecting the land searched:
  • A pending application for or caution against first registration.
  • The title number(s) of any registered freehold or leasehold land.
  • A registered rent charge.
  • A registered nonpossessory interest in the land.A registered franchise affecting the property.


Land Charges Department Search (unregistered land)

If the land is un-registered, you will be required to carry out a full Land Charges Department search. This will show whether there are any subsisting entries in the index. The certificate gives brief details of any land charges and it may be necessary to obtain an official copy of the land charges entry to see whether the entry affects the property.


Commons Registration Search

It is recommended to carry out a commons registration search if the property comprises, abuts or obtains its access across undeveloped land or has been newly built on previously undeveloped land   


Company Search

If the Seller is a company, consider making an initial search of the registers held by Companies House before exchanging contracts so that any problems are discovered at an early stage. You must repeat the search just before completion.

INVESTIGATION OF TITLE


Investigation of title is the process by which a title to property is examined. Investigation of title is carried out to check:
  • That the seller is legally entitled to transfer the title of the property; and
  • That there are no defects in that title adversely affecting the Buyer's interests.

These will then affect:
  • How the contract, transfer or lease should be drafted;
  • Whether there are any title defects which need to be resolved or disclosed to the Buyer; and
  • How to prepare any certificate on title.

If, during the course of investigating title, there are any matters that are not clear or are not satisfactory, these should be raised with the Seller as "requisitions on title".

When investigating Freehold property, the search will show that:
  • The property has the benefit of all necessary rights and easements, including rights of access over any private land; and
  • There is no problematic ‘restrictive covenants’ on the title, which limit how the property can be used.

Searches of a Leasehold property will show that:
  • The term (length) and rent are in accordance with the Heads of Terms
  • There are no onerous obligations on the tenant, particularly with regard to assignment or underletting;
  • The purpose for which the Tenant wants to use the property will not breach the terms of the lease; and
  • The Landlord cannot unduly interfere in the way the Tenant uses the property.

Where a new lease is being agreed, these matters can be negotiated with the Landlord. Where an existing lease is being assigned, the lease will usually be taken by the new Tenant in its original form, unless the Tenant wishes to engage in negotiations with the Landlord to vary any undesirable terms.

REPLIES TO ENQUIRIES


In commercial transactions the Commercial Property Standard Enquiries or CPSEs are usually raised. These are a comprehensive set of enquiries which help a Buyer to understand the property and the interest that it is acquiring.
  • The Seller is not under any duty to give replies, but it is under a legal duty to disclose latent defects affecting the property.
  • Replies to enquiries may amount to statements of fact or law and these can form representations to the Buyer. The Buyer will rely upon these representations when deciding whether or not to proceed. An inaccurate or misleading representation may mean that a Buyer could bring a claim for misrepresentation or negligent misstatement.
  • If the Buyer brings a claim against the Seller then, depending on which type of misrepresentation is established, rescission of the contract and/or a claim for damages may be available to a Buyer.
  • It is important that all replies given are accurate and truthful. Phrases such as "not so far as the Seller is aware" and "the Buyer should rely on their own enquiries and inspection" should be used with caution.

CPSEs are extremely common in most property transactions and are an effective way of understanding the entire background information concerning the property.

WHY A SURVEY IS IMPORTANT:
WHAT IS A SURVEY?


A survey is an inspection of a property's condition. There are various types of survey, each with their own benefits, but the more extensive a survey is, the easier it will be to find out everything you need to know about the property you are interested in purchasing.

House surveys are performed by Chartered Surveyors and it is strongly recommended that you employ a surveyor that is regulated by RICS for your house survey as they will provide you with clear and reliable expert advice.

There are two types of property survey, the Home Buyer Report and the Building Survey. The survey type that will be most appropriate for you will depend on a number of factors, such as the age, construction type and structural condition of the property. Your surveyor will be able to determine from an initial consultation the most appropriate survey for your purchase.

WHO NEEDS A SURVEY?


If you are purchasing an old property, over 40 years old, or you are planning to invest in a property which appears to be in a deteriorated condition, or where the basic structure has been converted or altered, it is advisable to opt for an independent survey to assess its general condition.

The main areas that a basic property report will cover are:
  • The use of the property, construction, age and design;
  • The adequacy of the structural framework and fabric;
  • The adequacy of services – such as sewage, water, electrics and gas;
  • A comparison of the condition of the property with others of similar age and style; and
  • Surety that the building conforms with modern requirements and regulations.

Your report should contain Risks and their appropriate response, classified as follows:
  • Extreme: immediate action required.
  • High: senior management attention needed.
  • Moderate: management responsibility must be specified.
  • Low: management by routine procedures.

You will then receive a summary highlighting any further tests or inspections to be undertaken prior to purchase. These include areas such as:
  • Specialist reports relating to the structure and services (drainage, mechanical and electrical and the presence of asbestos).
  • Material testing.
  • Full fire risk and health and safety assessments.
  • Reinstatement cost assessments for insurance purposes.Your mortgage lender may also require you to carry out a valuation survey before securing the funds for purchase.