Lie of the land
Morgan Allen outlines the implications for property matters at charity schools as a consequence of the changes to the Charities Act
The independent school sector is dominated in terms of ownership by charitable institutions, with approximately 80% of the UK’s independent schools held within the charity sector. Some have formed charity school groups such as the Girls Day School Trust (25 schools), United Learning (nearly 100 schools) and Methodist Independent Schools Trust (10 schools), while the majority comprise single-site schools.
Several strong charitable schools have been acquiring other schools within their catchments either to expand the age range taught or the facilities available, for example Berkhamsted School, which now has six schools within its ownership and Mill Hill Foundation which now has seven schools through recent charity mergers.
The Charities Bill received Royal Assent last year and has now passed into law as the Charities Act 2022. This article considers some of the key provisions of the Act that specifically affect charity school property.
It has long been recognised that charity schools are subject to a heavy administrative burden which can affect a school’s ability to further its educational charitable purposes.
The recent changes to the Act have been welcomed by the sector and while the changes are largely technical, they are designed to make a positive and practical difference.
The Act implements the majority of recommendations made by the Law Commission in its 2017 report ‘Technical issues in charity law’ and aims to reduce the administrative burden, saving both time and money, while allowing charities to focus their efforts on their charitable work, such as education.
The Act seeks to protect charity land and ensure that charities can deal with disposals of charity land in a way that is proportionate and appropriate.
The Act introduces additional flexibility in terms of who can provide advice, what the advice should cover, the form it should take, and the requirement to advertise. This more flexible, less prescriptive approach is likely to be welcomed by charities that regularly dispose of property, but may make the rules harder to navigate for less experienced governors.
WHO CAN PROVIDE ADVICE?
The category of those who can give advice to charities on disposals of their charity’s land has been expanded. The Act substitutes reference to a ‘qualified surveyor’ with ‘designated adviser’, which reflects an expanded category of advisors who are not members of the Royal Institution of Chartered Surveyors.
This allows advisors from The National Association of Estate Agents and The Central Association of Agricultural Valuers to give advice to charities on disposals, where applicable. It also allows for that advice or report to come from charity trustees and governors, officers and employees who are qualified, including where the report is provided in the course of employment. It has yet to be seen whether charities will be inclined to adopt this option or prefer to rely on insured professionals, against whom recourse could be sought in the event of errors.
Governors are likely to want to be satisfied that, whichever type of designated adviser they instruct, they:
• have the appropriate qualifications
• are professionally regulated
• have suitable professional indemnity insurance in place, where appropriate, and
• don’t have any interest that conflicts with that of the charity, particularly if the advisor is to be paid for the advice.
WHAT SHOULD THE ADVICE COVER?
At present, trustees (governors) are required to obtain a written report covering the matters specified in the Charities (Qualified Surveyors’ Reports) Regulations 1992. The Act significantly simplifies this requirement by replacing the regulations with a requirement for a designated adviser to provide advice principally around the following matters:
• the value of the relevant land
• any steps which could be taken to enhance that value
• whether and, if so, how the relevant land should be marketed
• anything else which could be done to ensure that the terms on which the disposition is made are the best that can reasonably be obtained for the charity, and
• any other matters which the adviser believes should be drawn to the attention of the charity trustees (governors).
On the one hand, this should give advisers greater flexibility to advise on the matters which they regard as most significant to the transaction in question; on the other hand, there’s a risk that potentially important matters, such as the existence of unhelpful restrictive covenants, or a complex planning environment, may be overlooked by a less experienced adviser.
In addition, less experienced advisers may not be best-placed to advise on overage agreements (sometimes also referred to as an anti-embarrassment clause, which seeks to stop the seller looking foolish if the buyer sells-on the property at a massive mark-up shortly after buying it). Overage agreements are time-consuming and often very complex to negotiate.
REQUIREMENT TO ADVERTISE?
The Act removes the requirement to advertise a proposed disposition in the manner advised in a surveyor’s report, or for the reports to contain the information prescribed by regulations made by the secretary of state (s119(4), 2011 Act).
At present, charity-to-charity transactions for less than best price are generally excluded. The Act recognises that in certain cases this approach is not appropriate and this exception will no longer apply to a commercial transaction where a transaction is intended to achieve the best price that can reasonably be obtained for the disposing charity, or a social investment.
The Act makes amendments to The Charities Act 2011 and will be implemented imminently (and may even have been implemented by the date of this publication).
Morgan Allen is a partner in the education team at real estate firm Gerald Eve