Charity Trustees Failure to Comply With Charity Land Disposal Rules

A recent Charity Commission inquiry concluded that failure to comply with the statutory restrictions which apply to disposals of charity land was not a minor or technical breach by the charity trustees but in fact amounted to basic and serious mismanagement.

Background

The Spiritualist Association of Great Britain Limited (a charitable company) owned a leasehold interest in a property at Belgrave Square in London which was due to expire on 25 December 2047. The charity used the main building of the property for charity operations and the outbuilding was used to generate income. The rent under the lease was minimal. However, under
the terms of the lease, the charity had to spend substantial sums on repairs to the property which it could not afford to do.

The charity trustees were therefore keen to dispose of the property and find alternative cheaper premises. However, the lease contained a particularly restrictive clause in regards to the use of the property which made it difficult to find a buyer. Between 2004 and 2009, the charity had tried to agree a sum with its landlord for the landlord to buy back the leasehold interest in the property.

Eventually, in November 2010, the charity disposed of the property for £6 million to Platinum Prime Property Investments Limited (a company registered in the British Virgin Islands). However, the property was very quickly sold to a third party for £21 million. Perhaps understandably, concerns were raised that the charity had suffered a significant loss of £15 million and the Charity Commission opened a statutory inquiry in July 2013 into the charity’s disposition.

Charity Commission’s Conclusion

Whilst the Charity Commission concluded that no charity trustee or any other associated person had derived an unauthorised private benefit from the disposal, the Charity Commission highlighted a number of failings which amounted to basic and serious mismanagement by the charity trustees. In particular, the charity had:

• Not acted on the professional advice obtained and disregarded the valid concerns raised
• Not obtain contemporaneous advice on the value of the property (a retrospective valuation was obtained instead)
• Failed to conduct proper due diligence

Essentially, the charity trustees were unable to properly demonstrate to the Charity Commission the steps it had taken to comply with section 117 to 122 of the Charities Act 2011 or that the decision to dispose of the property for £6 million was in the interests of the charity.

The inquiry acts as a reminder to all charity trustees of the importance of complying with the statutory provisions of the Charities Act 2011. The restrictions, additional rules and procedures do not just apply to disposals of land by charities; similar provisions apply to mortgages of land by charities and there are formalities to adhere to when purchasing land as a charity. It is important to get it right; for further information please read “Property considerations for charities”

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