Potential pitfalls for the unwary

The new Charities Bill, currently making its way through parliament, is expected to achieve significant cost savings for the sector in relation to many charity land disposals by reducing the compliance burden imposed by the current “one size fits all” regime.  The Bill proposes to expand the pool of professionals who can advise on a disposal, while simultaneously simplifying the requirements as to the content of the advice – allowing advisers to exercise a degree of discretion in deciding which matters are relevant and how best to provide the necessary guidance to charity trustees. Changes are also proposed to the rules for advertising property in connection with a disposal. However, some areas of uncertainty remain, and trustees should exercise caution in ensuring that they comply with the new requirements. Greater flexibility in selecting advisers At present, charities must obtain a report from a “qualified surveyor”, who must be both a fellow or professional associate of the Royal Institution of Chartered Surveyors and reasonably believed by the trustees to have sufficient ability and experience in the valuation of the particular kind of land in question. The Bill creates a new, broader category of “designated advisers”, which is expected to include fellows of the National Association of Estate Agents and fellows of the Central Association of Agricultural Valuers. The Bill confirms that advice can also be sourced from appropriately qualified trustees, officers and employees. Some have suggested that expanding the pool of advisers may mean that, at least at first, there is a risk that individuals with less experience of advising charities on property disposals may provide less sophisticated or rigorous advice. This may be particularly so when coupled with the Bill’s proposed changes to the requirements for the content of the advice.  The Bill seeks to guard against this by requiring the adviser to certify that they have the appropriate expertise and experience to provide the advice that is required and do not have any interest that conflicts with that of the charity. Trustees will want to be satisfied that, whichever type of designated adviser they instruct in future, the adviser has the necessary qualifications, is professionally regulated, and (where appropriate) has suitable professional indemnity insurance in place. Content of the advice In place of the current, prescriptive regulations, the Bill proposes much broader descriptions of the matters that should be covered in advice.  These focus on:  (a) the value of the land;  (b) any steps which could be taken to enhance that value;  (c) whether and how the land should be marketed;  (d) anything else which could be done to ensure that the terms of the disposition are the best that can reasonably be obtained; and  (e) any other matters which the adviser believes should be drawn to the attention of the trustees. Advertising  The Bill removes the statutory requirement to advertise a proposed disposal as advised in the surveyor’s report. Instead, it proposes that charity trustees must consider any advice on advertising received from the designated adviser.  It has been suggested that this change could leave trustees vulnerable to claims of false advertising. However, in many ways, the revised requirement is more consistent with the general approach charity trustees are expected to take in relation to professional advice – ie that they should take it where it is needed, and should carefully consider it once it has been obtained, but that they retain an element of discretion to depart from the advice where they consider that it is in the charity’s best interests to do so. When to obtain advice – uncertainty lingers The legislation remains clear that advisers must be appointed during the disposal of land or property, but uncertainty lingers over the timing of the advice. This can be particularly critical in the context of a fast-moving transaction. Some have interpreted Part 7 as requiring trustees to obtain advice both before and after marketing: before in order to inform the marketing process, and after in order to comment on the terms of the proposed transaction. The Law Commission has noted its expectation that trustees obtain advice at an early stage in planning a transaction, and that they may not need that advice to be refreshed or supplemented at a later point. However, it seems likely to remain the case that, for more complex transactions at least, advice as to the means of disposal will be needed both at the outset and as negotiations with potential purchasers progress. While, strictly speaking, the legislation places responsibility for ultimately determining whether the terms of a disposal are the best that can reasonably be obtained on the charity trustees, many trustees will quite reasonably want the reassurance of professional advice confirming that the final terms negotiated do, in their adviser’s view, meet that standard. This is particularly so for more significant transactions, where the difference between bids can be finely balanced.  In summary The Bill promises a welcome reduction to the compliance burden for charities that regularly dispose of land, but there are potential pitfalls for the unwary in the additional flexibility it offers. In navigating the new regime, both trustees and advisers will wish to ensure that they have fully understood and discharged their obligations, whether arising from statute or the general law.  Laetitia Ransley is a senior associate at Farrer & Co Image © Jeff Blackler/Shutterstock