Disposals by charities
Charities Act 2011 requirements
 EWHC 1358
Where a charity fails to comply with the Charities Act 2011 when disposing of land, breach of certain requirements will not render the contract void, but breach of other requirements may do so.
There are statutory restrictions on the sale of land by a charity, contained in the Charities Act 2011. Section 117(1) states the default position which is that no land held by a charity is to be disposed of without an order of the Court or of the Charity Commission. That position is, however, subject to ss119-121 and s127.
Furthermore s117(2)(b) enables the sale of charity land to take place without an order of the Court or of the Charity Commission if the requirements set out in s119(1) are complied with. These require the charity trustees, before exchanging contracts, 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; and
- advertise the proposed disposition for such period and in such manner as is advised in the surveyor's report (unless it advises that it would not be in the best interests of the charity to advertise the proposed disposition), and
- 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 it can reasonably be obtained for the charity.
Section 119(4) states that any report prepared for the purposes of s119(1) must contain certain information.
Ss 122(2) and (3) deal with additional requirements that are not part of the requirements arising under s117. They provide that:
"(2) An instrument to which this subsection applies must state –
(a) that the land is held by or in trust for a charity,
(b) whether the charity is an exempt charity and whether the disposition is one falling within s117(3)(a), (b), (c) or (d), and
(c) if it is not an exempt charity and the disposition is not one falling within s117(3)(a), (b), (c) or (d), that the land is land to which the restrictions on disposition imposed by ss117 to 121 apply.
(3) Where any land held by or in trust for a charity is conveyed, transferred, leased or otherwise disposed of by a disposition to which s117(1) or (2) applies, the charity trustees must certify in the instrument by which the disposition is effected:
(a) (where s117(1) applies) that the disposition has been sanctioned by an order of the court or of the Commission (as the case may be), or
(b) (where s117(2) applies) that the charity trustees have power under the trusts of the charity to effect the disposition and have complied with sections 117 to 121 so far as applicable to it"
The David Roberts Art Foundation Limited, a charitable company, owned a registered freehold property in London. The directors decided to sell the property and instructed estate agents to market it. The Defendant made a formal bid of over £8M to purchase the property. The Charity then instructed surveyors to prepare a report on the sale of the property, which valued it at £7.5M. However, the report did not deal with marketing in any detail, contained some inaccuracies and included nothing on advertising or whether it was in the charity's best interest to advertise.
The Defendant entered into a contract with the charity to purchase the property for more than £8M and paid a deposit of £410,000. The main body of the contract did not contain a statement as required by s122(2). However, it did specify that the transfer to the Defendant was to be in the agreed form annexed to the contract, and this contained a certificate that was only partially compliant with s122(2).
A meeting of the directors of the charity was held to approve the terms of the contract (which was exchanged the same day). It was unclear from the evidence whether the directors of the charity (as charity trustees) had considered the surveyor's report and decided that they were satisfied that the terms on which the sale was proposed were the best that could reasonably be obtained for the charity.
The parties then entered into a deed of variation, making minor adjustments to the contract and set a new completion date. The Defendant failed to complete, and the charity served notice to complete and then gave notice that it was rescinding the contract (and keeping the deposit). About a year later, the charity sold the property to a third party for £5.5M.
The charity issued a claim against the Defendant seeking a declaration that the contract had been validly rescinded and that the deposit was forfeit, together with judgment for the balance of the deposit due under the contract and damages. The Defendant alleged that the Contract was invalid, void or unenforceable because the charity had failed to comply with the requirements of the Charities Act and sought return of her deposit. As these issues had not been raised before, the charity then sought to amend its claim to include an order for rectification of the contract to deal with the Charities Act requirements correctly. The charity made an application for summary judgment, seeking a decision on its claim without a trial.
The High Court (Chief Master Clark) held that:
- A contract will comply with s122(2) if it contains the information required in a form that can be understood on a careful reading of it. As the draft transfer was specifically integrated into the contract, the information stated in the transfer could be treated as being stated in the contract. Nothing turned on the clause being drafted in the form of a certificate, as opposed to a statement.
- Parliament could not have intended that failure to include a statement in accordance with s122(2) in a contract would lead to it being invalid (whether void, voidable or unenforceable). Such an outcome was "disproportionate to the role played by the statement in the statutory regime". The importance of the s122(2) statement could be gauged by comparing it with the s122(3) certificate, which provides purchaser protection. There are no comparable purchaser protection provisions relating to the s122(2) statement. Chief Master Marsh said that s122(2) is a "flagging procedure" for the benefit of the purchaser and is not there to protect the charity.
- As the contract was valid, despite not containing a s122 statement, there was no need to deal with the charity's case on rectification, although the court expressed doubt as to whether the claim for rectification could be made out, based on the evidence.
- S119(1) was to be interpreted in the light of the overriding test in s119(1)(c), that the terms of the disposition were the best that could reasonably be obtained by the charity. Therefore, if a charity could demonstrate that advertising would have make no difference, a failure to advertise and to obtain advice on the need to advertise should not invalidate the transaction. Similarly, if charity trustees were satisfied that a disposal achieved the best price reasonably obtainable, the transaction would not be unenforceable because a surveyor's report was obtained later than envisaged by s119(1). However, the charity had not provided sufficient evidence on the process of marketing the property and the charity trustees’ decision-making for the matter to be dealt with by summary judgment. A trial would be necessary to investigate these matters.
The Charity's application was therefore dismissed.
Careful attention should be paid to the requirements of the Charities Act 2011 when acting for (or against) a charity that is disposing of land, as breach of some of these requirements may render the contract void.
Back to top