Commercial Property Update July 2019

Introduction

This month’s update contains an interesting case dealing with disposal of land by charity trustees (and the formalities that have to be complied with) together with an important update on reforms to the Residential Leasehold Sector. We also feature a useful update on the new Homes Ombudsman proposals. 

Case Law Update

David Roberts Art Foundation Limited -v- Riedweeg

This case provides a warning to charity trustees that a failure to comply with the statutory requirements set out in the Charities Act 2011 on a sale of land can put at risk the entire deal.

Introduction 

On a disposal of charity property, most charities are subject to statutory requirements set out in the Charities Act 2011 regarding the inclusion in contracts for sale and transfers of land of certain standard form statements and the need to obtain and review professional surveyor advice on the commercial terms of the disposal. 

In the above case, the claimant charity contracted to sell property in London for £8.1m. The defendant failed to complete and the claimant terminated the contract and commenced proceedings to recover the balance of the deposit and damages for loss. The defendant however argued that the contract for sale was void because the charity trustees had not complied with the relevant provisions of the Charities Act 2011 relating to the sale. 

Charities Act 2011 - Requirements on a Sale of Land

Section 122 (2) of the 2011 Act requires that a charity include in any contract for sale a specific prescribed form statement. Unfortunately, in this case, the charity had provided an incomplete statement and, although the charity trustees had sought advice from a surveyor (as required by the 2011 Act), they had not complied fully with the advice nor did the charity trustees advertise the property for sale (or obtain professional advice enabling them to dispense with this requirement). Worryingly, there also appeared to be no evidence that they had taken an informed decision after considering the surveyor’s advice that the terms of the sale were the best they could reasonably obtain. 

The Court’s Decision 

The Judge held that, in cases of non-compliance, there might be cases where:

  • (i) the charity trustees had not complied with all of the requirements for advice; or

  • (ii) had complied substantially with the requirements but had fallen short to a degree; or

  • (iii) cases where they had achieved something in between. 

The Judge stated that not every incidence of non-compliance would invalidate a sale contract. His view was that there was an ‘overriding test’ to be applied from the advice received from the surveyor instructed by the charity. This test required that the charity trustees be satisfied that the terms of the disposal had to be the best that could reasonably be obtained for that charity. If a charity was not compliant, it was for the charity to prove compliance with the statutory requirements would have made no difference, and in this case, that was an issue to be decided at a full hearing based on all of the evidence. 

Practical Considerations for Charity Trustees:

  • Restrictions on Land Disposals

Charities in England and Wales have always been subject to controls over the disposition of their assets. A charity that is a “non-exempt charity” (this being a charity that is not exempt from the controls of the Charity Commission) must not dispose of land unless either: 

  • (i) an order of the Court or of the Charity Commission is obtained; or

  • (ii) the charity trustees have followed the correct advice procedures set out in the 2011 Act. 

  • Charities Act 2011 - Statutory Advice Requirements

Where a “non-exempt” charity intends to enter into a contract to sell land (or an agreement for the grant of a lease or other disposition of land) the contract must advise the buyer that the advice procedures apply. Under Section 122 (2) of the Charities Act 2011, the contract for sale must include a statement that:

  • the land transferred is held by or on behalf of the named non-exempt charity;

  • the disposition is not within a limited range of excepted dispositions (under Section 117 (3) of the 2011 Act); and 

  • the restrictions on dealings imposed by the 2011 Act (the advice requirements) apply. The advice requirements involve the charity trustees obtaining and considering proper professional advice. 

Failure to meet these requirements means the disposal is void. 

Obtaining and considering “proper advice” means that, before entering into the contract for sale, the charity trustees must:

  • Obtain and consider a written surveyor’s report (prepared by a suitably qualified surveyor) in connection with the proposed dealing. The surveyor must be a Fellow or Member of the RICS or of the ISVA who must act exclusively for the charity;

  • Advertise the property for such period as the surveyor advises and;

  • Decide, having considered the surveyor’s report, that the terms of the dealing (including the price) are the best that are reasonably obtainable.

The Transfer Deed

It is also essential that an appropriate statutory certificate is given in the Transfer Deed. Under Section 122 (4) of the Charities Act 2011, where a statutory certificate has been given by the charity trustees in the proper form, a buyer can rely upon this certificate and proceed with the purchase.

Summary

This case is a useful reminder to all those involved in the disposal of charity land that failure to comply with the Charities Act 2011 requirements regarding disposal of land may prove a very costly error.

Legal Update

Residential Leasehold Consultation

The government has announced a number of reforms in the residential leasehold sector.  

These include:

  • That all New Build houses are to be sold on a freehold basis only;

  • A reduction to zero of ground rents on other new residential leases;

  • The renegotiation of Help to Buy contracts to explicitly rule out the selling of new leasehold houses other than the exceptional circumstances;

  • A new time limit of 15 working days and a maximum fee of £200 for the provision to the tenant by a landlord for information required on the sale of a lease;

  • On short-term lettings, new provisions for tenancy deposits and passporting schemes (where a tenant moves home and his deposit is passported to the new tenancy).  This announcement is subject to a call for evidence and we recommend that anyone with views on the passporting scheme for tenancy deposits should visit the government website (detailed below) and submit their views.

Further information can also be found by following the link below:

https://www.gov.uk/government/news/leasehold-axed-for-all-new-houses-in-move-to-place-fairness-at-heart-of-housing-market



Residential Development – New Homes Ombudsman

The government is also consulting interested parties regarding proposed legislation to introduce a redress scheme and a New Homes Ombudsman to improve the rights of buyers of New Build homes.

The stated intention is to make membership of a redress scheme compulsory for developers of new houses and to require all house builders that participate in the Help to Buy scheme to belong to a New Homes Ombudsman scheme.  The government also wants to cut across sectors by extending mandatory membership of the redress scheme to all private landlords, freeholders of leasehold properties and residential Park Homes site operators.

Interested parties should note that the consultation runs until the 22nd August and there is a link to the relevant website below:

https://www.gov.uk/government/consultations/redress-for-purchasers-of-new-build-homes-and-the-new-homes-ombudsman