Guidance

Acquiring land

Updated 14 June 2023

Applies to England and Wales

1. What is this guidance about?

This guidance gives general advice to charity trustees who are thinking of acquiring land, whether for the charity’s own use or as an investment.

It is not intended to replace advice from a charity’s own professional advisers. The trustees will need to consult these whenever they propose to acquire land.

While this guidance is written with the needs of trustees of charitable trusts in mind, the contents will also be generally applicable to directors of charitable companies. Key differences are indicated in this guidance.

This guidance does not apply to special cases of common investment funds (other than pooling scheme funds) or common deposit funds. (The next section explains what these are.)

2. In this guidance

2.1 Meaning of words or expressions used

The Charities Act: means the Charities Act 2011 (as amended).

Charitable company: means a company formed and registered under the Companies Act 2006; or to which the provisions of the 2006 Act apply as they apply to a company so formed and registered; and which is established for exclusively charitable purposes.

Common investment funds and Common deposit funds : CIFs and CDFs are registered charities and offer other charities of all sizes a vehicle for the investment of their funds. They are not the same as Charitable Authorised Investment Funds (CAIFs).

Land: means freehold or leasehold land in England and Wales. ‘Land’ includes buildings, and also includes an interest over other land where that is acquired to accommodate the land being purchased. Land may be owned by a charity or held in trust for a charity.

Governing document: is any document setting out the charity’s purposes and, usually, how it is to be administered. It may be a trust deed, constitution, memorandum and articles of association, will, conveyance, Royal Charter or scheme of the Commission.

Mortgage: includes any charge over land.

Unincorporated charity: means a charitable trust (other than a CIF or a CDF) or a charitable unincorporated association.

The word ‘must’ is used where there is a specific legal or regulatory requirement that you must comply with. ‘Should’ is used for minimum good practice guidance you should follow unless there’s a good reason not to.

3. Trustees’ powers and duties

3.1 Unincorporated charities

Trustees of these charities generally have a statutory power to acquire land if it is needed to carry out the purposes of the charity or for investment.

The trustees of most unincorporated charities can use the wide powers of land purchase conferred by the Trusts of Land and Appointment of Trustees Act 1996. The power can only be exercised to carry out the purposes of the charity or for investment, and it cannot be excluded by the governing document of the charity (unless the governing document is an Act of Parliament).

Part III of the Trustee Act 2000 gives a corresponding power to the trustees of other unincorporated charities, though this power is generally capable of being restricted or excluded by a provision in the governing document of the charity.

3.2 Charitable companies

In general, a charitable company’s powers to acquire land will be set out in its memorandum and articles. If the company is holding property on trust, the powers in the Trusts of Land and Appointment of Trustees Act 1996 and the Trustee Act 2000 are available to a charitable company in the same way as they are to an unincorporated charity.

4. What are the general duties of trustees when acquiring land for their charity?

The primary duty of trustees is to carry out their trust in accordance with its terms. Trustees also have a general duty to act reasonably and in the interests of their charity.

A trustee must exercise such care and skill as is reasonable in the circumstances, having regard in particular:

• to any special knowledge or experience that they have or reasonably believe they have
• if they act as trustee in the course of a business or profession, to any special knowledge or experience that it is reasonable to expect of a person acting in the course of that kind of business or profession

This means that trustees need to take all reasonable steps to ensure that:

• they have the necessary power or authority to purchase the land
• the property is suitable for its intended use and, in particular, is not subject to any legal or planning restrictions or conditions which might conflict with that use, or with which it may be difficult for the trustees to comply
• any necessary planning permission is obtained
• the price or rent to be paid is a fair one compared with similar properties on the market
• the charity can afford the purchase - in particular that if a property is being bought with a mortgage, the mortgage can be financed out of the resources of the charity and that any potential rises in interest rates have been budgeted for
• if trustees are buying land with the aid of a mortgage, they secure the best borrowing terms reasonably obtainable by comparing interest rates and other terms between various lenders
• when acquiring a lease, they understand the obligations to which the the charity will be subject under the lease, and that the terms of the lease are fair and reasonable
• appropriate professional advice is taken including legal advice; the cost of taking professional advice can be met by the charity

Determining what constitutes ‘reasonable steps’ will depend on:

• the complexity of the affairs the trustees have to handle in administering the charity
• the seriousness of the loss or harm that might result to the charity or its beneficiaries if the trustees mishandle those affairs
• the skills a trustee has (or in the case of a professional trustee, ought to have)

5. Investing in land

Trustees may wish to acquire land not for use in carrying out the purposes of the charity but as an income-producing investment. This may be done provided they have the power to do so. The Commission can provide the necessary authority in a case where it is not otherwise available.

In using the statutory, or any other, power of investment, trustees must firstly have:

• taken proper advice from someone they reasonably believe to be qualified to give this advice (unless the trustees reasonably believe this to be unnecessary)
• considered the suitability to the needs of the charity of land as an investment, and the suitability as an investment of the actual land that it is intended to acquire
• considered the need to spread the charity’s investments

They must also review the investments periodically.

These investment duties do not apply to the investment of the corporate property of charitable companies. The Commission would, however, recommend that trustees of these charities observe the principles set out above.

The ownership of land carries with it obligations of varying kinds. Some of the points which will need to be considered when thinking about buying land as an investment are:

• it cannot be presumed that land will only rise in value
• land may require more active management than would be necessary with other forms of investment; the Commission considers that charities without the resources to provide this should avoid acquiring land as an investment
• land cannot be turned into cash as readily as, for example, stocks and shares; neither can it always be sold piecemeal, as with stocks and shares, if the need to raise an exact sum arises. Similarly the management of investment land requires different investment expertise and advice than investment in stocks and shares
• purchase of a sufficiently diversified portfolio of investment land (particularly commercial property) may be impracticable for an individual charity; investment in a land-based CIF may be a more suitable way for some charities to invest in land
• the ownership of investment land may impose financial obligations on the charity

The Commission would recommend that this type of investment is normally only suitable for a charity that either:

• has traditionally held land as an investment or
• has a sufficiently wide and varied portfolio of investments into which land could reasonably be introduced

Read our guidance on charity investments.

6. Designated adviser’s report

The Commission strongly recommends that trustees proposing to buy land, whether for investment purposes or for use by the charity, obtain and consider a report from a designated adviser acting solely for the trustees. A designated adviser is either a fellow or professional associate of the Royal Institute of Chartered Surveyors, a fellow of the Central Association for Agricultural Valuers or a fellow of the National Association of Estate Agents Propertymark who is reasonably believed by the trustees to have the ability in and experience of valuing land similar to, and within the same area as, the land the charity wishes to purchase. The cost of taking professional advice can be met by the charity.

The designated adviser can be a trustee, officer or employee of the charity if they are a member of one of the required bodies, but the trustees:

• must manage any conflicts of interest
• must make sure, if a trustee or officer is to be paid for acting as designated officer, that your charity’s governing document doesn’t prevent payment of trustees and follow the legal requirements for paying trustees
• should check their charity’s insurance cover. Not all insurance will cover negligent advice given by an adviser who is also a trustee, officer or employee of the charity

Read our guidance about trustee expenses and payments.

Read our guidance about conflicts of interest.

Whether seeking advice from an internal or external designated adviser, the Commission recommends that the report includes advice on a reasonable price range for the land, or on the maximum bid the trustees should make at auction. The trustees should also be careful to ensure that the report covers all factors relevant to the proposed purchase. These may include:

• a description of the land
• details of any planning permission needed
• a valuation of the land
• a description of any repairs or alterations the trustees would need to make, and the estimated cost
• anything else that could be done to ensure that the terms of the proposed purchase are the best that can reasonably be obtained for the charity
• anything else the designated adviser thinks relevant, including a description of any restrictive or other covenants to which the land is subject

We also recommend that the report includes a statement by the designated adviser that they have:

• the ability in, and experience of, the valuation of land of a similar kind in the area
• no interest which conflicts with or would appear to conflict with that of the charity

There may be occasions when the trustees decide not to obtain a report from a designated adviser on the proposed land purchase. If the trustees decide not to obtain a report before purchasing land, they must be satisfied that they have taken all relevant matters into account and have paid careful attention to whether the transaction is in the best interests of their charity. Trustees should follow the principles set out in the guidance on trustee decision-making, including keeping a clear record of their decision-making so that they can demonstrate that they have acted in the best interests of their charity and complied with their general duties as trustees.

Read our guidance on trustee decision-making.

Examples of situations in which trustees may decide that it is not in the best interests of their charity to obtain a report from a designated adviser could include where:

• the charity already has sufficient in-house expertise which would make additional advice unnecessary
• the trustees are intending to purchase land in excess of market value in pursuit of their charitable purposes such that the additional cost is justified because of the value of the land to their charity

7. Must the trustees obtain an order of the Commission before acquiring land?

In most cases, no. However it will be necessary to apply to the Commission for an order if the charity is proposing to:

• use money that represents permanent endowment to acquire land other than freehold land
• buy land from one of its trustees (or from other people or bodies closely connected with a trustee); in these cases an order will avoid the risk that the purchase might subsequently be set aside because of the conflict of interest
• buy land when it has no power to do so

8. Can trustees buy land with a mortgage?

Yes, but in the case of investment land the Commission advises trustees to be particularly careful that the income from the land being acquired is sufficient, after deduction of all outgoings, to meet the mortgage repayments and to provide an adequate return on any sum invested.

Usually the land offered as security for a mortgage loan is the land being purchased, but on occasions trustees may want to mortgage land the charity already owns. Trustees must follow the relevant legal requirements set out in Charity land: Mortgaging your charity’s land in England and Wales before taking out a mortgage on the charity’s land or when in the process of purchasing land.

9. Dealing with local opposition to a purchase

Some charity projects involving the acquisition of land arouse opposition locally or even more broadly. Where this is likely, trustees are advised to plan carefully in advance, consult widely and provide full information about their proposals and the reasons for them.

10. Who should hold title

Charity land must either be registered in your charity’s or an individual’s name with HM Land Registry. Read Registering land or property with HM Land Registry for more information.

If your charity is a company or Charitable Incorporated Organisation (CIO), you can register the title to the land in the name of your charity.

If your charity isn’t a company or CIO, you could appoint individuals to hold the land on behalf of your charity (usually some or all of the trustees). This may lead to extra work and expense when trustees change, because you need to re-register the land in the names of the new trustees.

To avoid this, you could transfer your charity’s land to the Official Custodian – this is a free service that the Commission provides that holds land on behalf of charities. This means your charity’s land would be held in the same name regardless of who the trustees are. Read guidance about the Commission’s Official Custodian service.

Apply using the Commission’s online form.

11. Further information

Many issues raised in this guidance will require the advice of the trustees’ solicitor or a designated adviser. Guidance is also available on the Commission’s website as indicated above.