NB: We are in the process of reviewing the contents of this article in the light of the changes recently introduced to the Charities Act.
A charity’s property is a great resource and a gift from God. You may be approached by someone from your community who would like to hire your property for an event or regular meeting. This can be a good source of income for your church or organisation and a great way of building relationships with your community. How can you do this in a legally compliant way which protects you, your property and your user groups?
There are a range of issues you need to consider. You need to know what the individual or group would like to use your property for, and you need to check if your trust deed and charity law will permit the letting.
Trust Deed
The trust deed of your property may contain limitations as to the use of the property. For example, if it is a church building, it may say that the property can only be used ‘for the public worship of God and for no other purpose’, in which case anything else is prohibited. However, the deed may set out that the property is to be used for certain purposes such as public worship and religious instruction, but without any restrictions then it would be possible to consider further a request for other uses. We can provide a review of your trust deed to ensure that you are not breaking any of its restrictions when you are considering letting your building to a user group.
If the deed does not prohibit the use, but equally does not specifically provide for the property to be used in the manner envisaged then the Trusts of Lands and Appointment of Trustees Act 1996 allows the trustees to permit the letting. However, you must still ensure that it complies with any Charities Act 2011 provisions or requirements of the Charity Commission.
Planning Legislation
If you are a church looking to let its building to a third party, there may be some complications with planning legislation. While planning law allows a wide variety of uses for church premises this is not so wide as would permit almost anything. We can advise you on what the relevant uses of a church building under planning legislation are. Depending on the proposed third-party use, you may need to obtain planning permission.
If your charity’s building is not a church building you will also need to check with planning regulations to make sure that the use is allowed under the Town and Country Planning (Use Classes) Order 2011.
What parts of the property are going to be used by a third party?
You need to consider what part of the building is going to be used. What facilities are you agreeing to provide? Do you have specific restrictions you need to make clear? What about liability for insurance, repairs or replacement? Are heating or lighting included? In order to protect your charity and those who are using your property, you will need a written legal agreement to cover these aspects. Depending on the terms agreed, you may need a Licence Agreement, a Lease or a Hire Agreement. We can provide these for you, tailored to your specific situation.
Lease or Licence?
You will need to decide what type of agreement is right for your situation. The key thing to consider here is if you are intending to grant exclusive possession of the property for a period of time. Exclusive possession means that the tenant is allowed to exclude strangers, as well as the landlord, during its period of use. Here are the types of agreement you may need:
| Licence | If you have a group who want to hire your building on a regular basis, for example every Wednesday night, but when you may need to allocate a different room from time to time. |
| Venue Hire Agreement | If a group wants to hire your property on a one-off basis. |
| Lease | If you want to grant exclusive possession of the property to a tenant for a period of time you will need a lease. |
These should be drawn up by a solicitor. We have carefully drafted a model venue hire agreement available for purchase. For the other situations listed above we recommend speaking with a solicitor so that we can ensure you are being provided with the agreement that suits your needs.
Leases and the Charities Act
The Charities Act 2011 lays down specific rules relating to the letting of property by way of a lease. Where a letting is for seven years or less, the Managing Trustees are required to obtain the advice of a person believed to have suitable experience to be able to advise on what the market rent for the property concerned would be. This means contacting a local estate agent/surveyor who deals with the letting of property and asking them to provide written advice of what the market rent would be. Having received that advice, the trustees should seek to let the property at the advised rent and terms.
If you would like to create a lease of more than seven years, you must obtain a valuation report from an appropriately qualified surveyor (being a fellow or a professional associate of the Royal Institute of Chartered Surveyors or of the Incorporated Society of Valuers and Auctioneers) who has experience of the area in which the land is situated. The report must comply with the Charities (Qualified Surveyors’ Reports) Regulations 1992 and will include far more detail than a normal valuation from an estate agent. It will cover the best means of marketing the property as well as advising on the rent required.
Business Rates
If you are a church letting a building, then there might be a change in the rates. Where the use of the building by the third party is so substantial that all of the building or a part of the building is no longer primarily used as a place of worship, this may mean that the exception from paying business rates no longer applies to all/part of the building. Therefore, the letting documentation should include a clause requiring the third party to pay any business rates that do become payable as a result of their use.
Corporation Tax
The Charity Commission guidance on trading and tax (CC35) explains that where charities engage in trading, the revenue generated is liable to corporation tax unless one of the exemptions designed for charities is applicable. However, the guidance also explains that the letting of land or buildings is not classed as trading provided that no services are provided to the user (other than allowing the use of the building). Therefore, if you are providing services (over and above simply making the building available) you should take tax advice on whether the revenue generated will be taxed or whether it falls within an exemption.
If you would like to discuss your charity’s property requirements get in touch with our team.
This information has been provided by solicitors working for Edward Connor Solicitors. It is designed for the purpose of knowledge sharing only and does not constitute legal advice.
Learn more about our services:
