There are several considerations that charities must keep in mind when entering into a new lease as a tenant. Trustees should consider what steps they need to take before agreeing a lease.
The trustees' first consideration should be whether they have the power to enter into a lease. The trustees' powers are usually set out in the charity's governing document. The document will also include any limitations on the trustees' power and so it must be carefully checked.
If no express powers are included in the document, then (subject to certain exceptions) the trustees can make use of statutory powers granted to them under the Trustee Act 2000 (TA 2000). The TA 2000 gives trustees the power to acquire a legal estate in land (both leasehold and freehold) and invests them with “all the powers of an absolute owner”.
However, trustees must ensure that these statutory powers aren't expressly excluded or limited by their particular charity's governing documents.
Do the charity trustees need consent to enter into the lease?
Usually, where a charity intends to rent property, no consent is required from the Charity Commission or the court. But if the governing document states that consent is required, then that consent must be obtained.
Other circumstances that would require consent include trustees having no power to enter into the lease, the landlord being a connected person (such as the trustees themselves, their family, employees or officers of the charity), the use of permanent endowment (money that was originally supposed to be held by the charity forever), or the property being outside the UK.
Do the trustees require professional advice?
While there is no specific statutory procedure for trustees to follow when acquiring land, trustees have a general duty to act reasonably and in the best interests of the charity.
They should give careful consideration to entering into a lease and consider seeking professional advice on the terms of the proposed lease and the financial implications from a suitably qualified advisor, such as a surveyor and/or a solicitor.
Personal liability of the trustees
Charity trustees of a trust or an unincorporated association who take a lease on behalf of their charity will have potential exposure to personal liability for the tenant covenants in the lease.
It would therefore be prudent for trustees in this situation to consider whether they can negotiate a cap in the lease, limiting their liability to the recoverable assets of the charity.
Statements required under CA 2011
A lease to a charity must include a statement that complies with section 122(8) of the Charities Act 2011 (CA 2011). Whilst a tenant charity would not ordinarily be responsible for drafting a lease agreement, the charity (or their legal advisor) should ensure that the lease contains this statement.
Meanwhile, representatives should ensure that the lease contains the correct attestation clause for the charity and has been validly executed.
Tax considerations
Leases to charities may qualify for relief from Stamp Duty Land Tax, provided that the relevant criteria for claiming the charitable exemption have been met. You should seek professional advice on whether your charity is able to claim the charitable exemption.
In addition, trustees should consider whether VAT is payable on the rent (and other costs due under the lease) and take professional advice where needed.
