Gary Jones, 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.
Gary Jones is a director based at WHN’s Bury 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 Gary, call him on 0161 761 8093 or
email [email protected]