Specialist Outlook

Charities and Property A Match Made in Heaven?

25 September 2014

It has been said that property is theft, but whether you view property as an irrelevance, a burden, or a vital resource, the reality is that we all depend upon it in a host of different ways. Charities are no different to us as individuals, and property is a key asset for many charitable organizations, and is crucial whether it be for delivering front line services, as administrative offices, or as retail units which provide a public face for the charity whilst generating essential funding to enable services to be provided and sustained.

An additional complication for charities is that they may also find themselves receiving land or property as part of a legacy gift – often this will come ‘out of the blue’, and although it has been donated in the right spirit, it may not be fully in tune with the property aspirations of the charity, and may come with strings attached, which can cause a few headaches for the trustees or board of management in deciding how it should be properly dealt with.

At the most basic level the Charity Commission is the independent regulator of charities in England & Wales. It publishes guidelines to assist trustees and management boards in meeting their obligations under the Charities Act 2011 in all matters of governance, including how they deal with land and property assets. The main questions trustees need to ask before disposing of a property are:

What do I need to consider before disposing of land/property?

•    Do the trustees have power to dispose of the property?
•    Would the disposal be in the best interests of the charity?
•    Do the trustees own the title to the property?
•    Is there anything in the governing document which prohibits the disposal?
•    Is authority required from the Charity Commission or the Court?

*source – Sales, leases, transfers or mortgages – What trustees need to know about disposing of charity land (Charity Commission, March 2011)

With this in mind some of the most frequent questions asked by charities to Bruton Knowles include:

1.    Where can I get cost-effective advice on property issues?

Trustees have an over-arching requirement to act in the best interests of the charity at all times, and this applies equally to managing or disposing of property assets as to other issues.

When disposing of assets, there is a requirement to demonstrate that best value has been obtained, and that the best interests of the charity have been observed. Typically this means that the charity will be required to obtain and consider a written report from a suitably qualified and experienced Chartered Surveyor, outlining advice and recommendations for the best method of disposal and the anticipated price which may be achieved.

Once a report has been obtained it will normally be necessary for the disposal to be advertised in accordance with the advice received and once an offer or offers are received the board must satisfy themselves that the proposed terms are the best which can reasonably be obtained in the circumstances of the disposal.

Larger charities may have retained advisers who can fulfil this requirement, but for smaller charities and voluntary organisations the Royal Institution of Chartered Surveyors (RICS) administer a scheme which offers a one hour free consultancy from regulated firms of chartered surveyors, such as Bruton Knowles. The scheme is called Charity Property Help. For more information go to www.charitypropertyhelp.com or email propertyhelp@rics.org.

2.    Are we obliged to sell at the highest price possible?

Generally speaking the trustees will be expected to ensure that the highest price possible has been achieved, however there are some limited exceptions to this, for example if the asset is being transferred to another charity. In this instance it may be possible to dispose of the asset at below market value, subject to certain conditions being met.

3.    Is our property portfolio fit for purpose?

In ‘Good Governance – A Code for the Voluntary and Community Sector’ (Oct 2010), six Principles of Governance are set out. Principle Two states that ‘An effective board will provide good governance and leadership by ensuring delivery of organisational purpose’. A number of elements to this are identified, including; developing and agreeing a long term strategy, agreeing operational plans and budgets, and monitoring progress and spending against plan and budget.

For many if not all organisations, property costs will be one of the most significant budgetary items after staffing and service delivery. The property portfolio must be properly managed and ‘fit for purpose’ if costs are to be minimised and unnecessary expenditure avoided. Property is a great asset but it can also be a liability for a charity,. Despite the increased emphasis on asset management in recent years, property portfolios held by charities are often predominantly historic, and may have been largely ‘inherited’ rather than actively acquired and as a result can often be unfit for purpose.

Consequently,  trying to ‘make do’ with the existing property portfolio can be a drain on time, resources and finance – a burden which charities, like all businesses, can ill afford. It may also be that during the economic downturn, when attention has been focussed on saving money, essential maintenance may have been postponed. The best thing to do is to take a strategic view, and to plan your activities first, before managing your property portfolio to fit the activities

4.    What should we do about Business Rates?

Charitable organisations have benefited for many years from significant rates relief on their property portfolios. But there are different rules for different properties and care is needed to avoid falling foul of the regulations. For instance there is a difference between the trading arm of a charity and a not for profit organisation.

Some local authorities have their own relief schemes for charities, therefore local as well as national conditions need to be checked. In general however, as long as a charity sells mainly self-donated items, retail premises can also qualify for rates relief. The bottom line is that for most situations involving charities it should be a straight-forward matter to achieve the mandatory 80% rates relief, and a specialist rating surveyor will be able to establish whether further savings could be made.

5.    How can we quickly get rid of an unwanted property?

Disposing of a property invariably takes longer than you think. No matter what you do it may take as long as a year from deciding to sell, to achieving completion. Sometimes speed is of the essence but often it is more important to get the right deal for you so that the charity benefits most. Planning ahead is the key.

If speed is important then sale by auction can be an attractive option, and has the benefit of being open and transparent, but it is dependent on the level of interest ‘in the room’ when the sale takes place. In most instances you would want to set a reserve price at a level recommended by the marketing report, to avoid any possible accusations of under-selling the asset in question.   

6.     How can we minimise the maintenance burden?

Maintenance should be planned around the key dates of your property. It is important to realise that most commercial leases leave you with a burden of repair and decoration when you move out, therefore keeping a property in good order pays dividends in the long run. It is possible to outsource property management and maintenance to a specialist contractor if the property portfolio merits it, or where you do not have the skills in-house. Budgeted and planned preventative maintenance programmes are a must if you want to protect your asset. Condition surveys that identify existing defects in buildings can be very useful, not only to inform the future maintenance programme but also as important evidence when a lease expires or is to be renewed.

7.    What is the situation regarding VAT on property?

VAT can be a minefield, and is a particular headache for charities who may find that they occupy commercial premises which are elected for VAT on the rental, which unlike most commercial businesses, the occupying charity is unable to reclaim. The VAT situation is tricky on properties involving charities, but it is possible to find properties which are not elected for VAT, and there are now a number of ‘charity-friendly’ landlords who have registered buildings which are exempt from VAT, leased exclusively to charities. It is worth checking out if suitable accommodation of this type is available where you want to be based.

8.    Is it possible to raise revenue through property?

Property can provide a revenue earner for charities. The most obvious way is by letting out unwanted space, but this may be harder than you think. What often works well is when a charity acts as landlord for another charity. Other things to consider are whether the building is suitable for renewable energy technology, which can lower overheads and in some cases small scale green energy schemes can raise revenue, subject to an initial capital outlay.
 
Paul Williams, Charity specialist Bruton Knowles




 

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Paul Williams

Paul Williams specialises in helping charities manage their property assets more effectively. Paul has extensive experience producing asset management plans for complex property portfolios and is well versed in relevant legislation, including the provisions of the Charities Act and dealing with the Charity commission.

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