On the sale or the lease of property owned by a charity, the trustees are obliged to obtain a written report from an independent surveyor. This requirement often causes some confusion, with trustees not understanding why this is required, and concerned about wasting the charity’s funds, and buyers become frustrated with additional delays and suspicious that this is a last-minute haggle for an increased purchase price or improved terms.

Why is the report from an independent surveyor needed?

Section 117 of the Charities Act 2011 requires that before completing on a sale or lease, the trustees of a charity must have obtained and considered a written report from an independent surveyor confirming that the terms of the agreement are as best as can be reasonably obtained by the charity. It is important to note that the surveyor must be acting solely for the trustees and therefore the same surveyor as the one who negotiated the sale cannot be used.

If the trustees skip over this step and do not obtain the report, they could be personally liable for any losses incurred by the charity if it is later found that the property was sold at below market value. Whilst trustees are usually entitled to an indemnity from the charity’s assets for any liabilities incurred during the exercise of their duties, this is conditional on them having acted properly.

Why can’t the original valuation be used?

The original valuation cannot be used because the surveyor must give guidance to the trustees on a variety of issues, not just the value of the building. Furthermore, the surveyor must be independent and therefore have no benefit to the transaction completing or not. A surveyor who is acting on a commission basis upon a successful sale is therefore not independent.

The report must contain the advice points set out in the 1992 Regulations including:

  • If the value of the property could be enhanced by alterations being made

  • If the value of the property would increase if planning consent was obtained for the property. For instance, if the property being sold was a disused mill, it may arguably sell for more if planning consent for flats was obtained prior to the sale

  • If an overage should be placed on the land or if any restrictive covenants should be included in the transfer

When should the report be obtained?

The report needs to have been sought before the contract is exchanged. Given the scope of the advice contained in the report, it is best that this is sought as early as possible so that terms can be re-negotiated if necessary, for instance to include an overage.

Who can provide the report?

Any member of the Royal Institution of Chartered Surveyors provided that they are independent to the sale of the property. It should be made clear to the surveyor before they begin the work that the report is needed in order to comply with Section 117 of the Charities Act 2011.

Who should pay for the report?

The charity should pay for the report. The cost will vary from surveyor to surveyor and a fee should be agreed beforehand.

If you are looking for advice on the buying or selling of a charity property, contact Farleys’ commercial property solicitors. Call the team today on 0845 287 0939 or drop us an email and we will get in touch with you.