Case law: Charity trustees selling property at less than market value should have taken specialist advice
Charity trustees proposing to sell a property should have obtained a qualified surveyor's report and taken specialist advice on other ways to benefit from post-sale increases in value of the property, and failed in their duty to act in the charity's best interests by not doing so, a statutory inquiry has found.
This update was published in Legal Alert - June 2017
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A charity sold a leasehold property in London for £6 million. The landlord was asking for substantial sums towards maintenance of the property, which the charity could not afford. There was a complex clause in the lease restricting use of the property, so the charity was keen to sell. However, the new owners sold it for more than £21 million a short time later.
A Charity Commission statutory inquiry found that the charity trustees' behaviour amounted to "basic and serious mismanagement", and they had failed to discharge their legal duties to the charity. They should have obtained a report from a qualified surveyor before marketing the property. They should also have taken specialist advice on ways to benefit from any post-sale increase in value of the property, for example, if planning permission for a change of use was obtained, or an application to lengthen the period of the lease was successful, or the freehold was acquired.
Also, the buyer was a shell company but the trustees failed to consider how the buyer could fund the purchase, or the risk to the charity if the transaction went wrong.
Such considerations were part of the trustees' duties to act in the best interests of the charity, and they had failed to discharge those duties. It was irrelevant that they acted in good faith and did not benefit personally from the sale.
The inquiry's comments could arguably equally apply to directors of commercial organisations, such as trading companies, wishing to sell property.
- Charity trustees (and those managing other organisations such as directors of limited companies) proposing to sell a property should consider obtaining a qualified surveyor's report and specialist advice on other ways of benefiting from post-sale increases in value of the property, or risk failing in their duty to act in the best interests of the charity or other organisation
Case ref: Download the inquiry report on the GOV.UK website
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