DISPOSING OF CHURCH LAND AND BUILDINGS FOR AFFORDABLE HOUSING: BEST TERMS

DISPOSING OF CHURCH LAND AND BUILDINGS FOR AFFORDABLE HOUSING: BEST TERMS 1. Many churches and religious bodies would like to dispose of redundant buildings or surplus land to provide affordable housing but believe that they are obliged to obtain the best price for their assets. Charities selling or leasing land or buildings in England or Wales are normally required to be satisfied that that they are disposing of them on the best terms that can be obtained. The requirements are set out in s117-119 of the Charities Act 2011 1. 2. This note explains the issues around what constitutes best terms and some of the exceptions to this requirement. It relates particularly to property owned by Christian churches and denominations. Other faith groups may have differently framed purposes to those generally accepted as being Christian. Some types of property owned by the Church of England are covered by special provisions. Exceptions 3. There are a few exceptions to the requirement to obtain best terms. These include: a. Sale or lease to another charity at less than the best price and that the disposal fulfils the purpose of the charity. The provision of affordable housing can generally be shown to further the purpose of advancing Christianity and therefore be in fulfilment of the purpose of a Christian charity (see Purposes of a Charity paragraph 8). Some, but not all, housing associations are registered charities and could be covered by this clause. However, many of these are small associations which do not undertake new development. b. Redundant churches owned by the Church of England. Special provisions apply to these, allowing disposal at less than market value.(see FIAH guide Section 2 2 ). c. Sale or lease of a rural site for affordable housing. 1 Formerly s36 Charities Act 1993 2 Faith in Affordable Housing guide Housing Justice 2009 http://www.housingjustice.org.uk/pages/fiahresources-117.html 1

Some rural sites which are in, or adjoining existing villages, would not normally be granted planning permission for private housing. However, they may be granted planning permission for affordable housing as rural exception sites. It can be shown that best terms have been obtained in a sale to a housing association for affordable housing, as the site would normally have a much lower value if it were to be sold for any other purpose. However, the government is proposing to amend the definition of affordable housing in England to include starter homes, which will be sold at 20% below market value. Developers will be able to get planning permission for schemes of starter homes on rural exception sites. They are likely to be able to offer higher prices for the site than if affordable homes for rent or shared ownership were built there. It may therefore become difficult to use the rural exception argument to establish best terms for a scheme for affordable rent or shared ownership homes, if it is likely that starter homes could be built instead on the site. d. Glebe land owned by the Church of England See paragraph 13 Best Terms 4. The Charities Act 2011 requires that the trustees of a charity must get a written report from a suitably qualified surveyor acting for the charity before agreeing to a lease or sale. They must be satisfied that the proposed agreement is at the best terms that can reasonably be obtained. 5. Best terms has been interpreted in various ways by different churches and denominations. Some have sold on the open market whilst others have disposed of land or buildings to housing associations on relatively generous terms. 6. There is longstanding advice for religious bodies about what constitutes best terms. It is generally interpreted as the best price that can be obtained for the land or buildings on the open market. Affordable housing is defined as housing provided for sale or rent at sub-market prices for people whose needs are not met by the market. Such people are mostly on lower incomes and often vulnerable due for example to mental health issues, disability etc. As the rents charged are below market rents, housing associations may be unable to offer the best price for a site. However, trustees may also consider how the provision of affordable housing in an area can further the overall mission of the church when assessing best terms. Provision of Affordable Housing as a part of the Church s Mission 7. When a church helps to provide low cost housing for local people, it can be a powerful means of showing that the church is concerned about, and relevant to, the community. A church can build on this goodwill, by helping to welcome the new residents once the homes are completed and providing advice and support where appropriate. Conversely, when a church decides to dispose of an asset at the best possible price, Christians are perceived as behaving no differently to the rest of society. They re only interested in the money, is the cry. Of course, churches need to balance the books and maximise their resources. However, if the way in which they dispose of their assets, in order to fund the mission of the church, impacts negatively on that mission, then a reappraisal of best terms is surely merited? 2

Purposes of the charity 8. Trustees need first to check the governing documents of the charity to ensure there is no specific requirement that the best i.e. top price has to be obtained. They should also check the purposes or objects of the charity. If the objects are very specific, it may be worth getting legal advice about the possibility of widening these objects to allow the charity to achieve its aims. 9. Charities, including religious organisations, have to show that their aims are for the public benefit. The Charity Commission is reviewing its guidance but the most recent advice 3 states that: It is recognised that charities whose aims include advancing religion can have very broad aims and that there might be an overlap with other charitable aims such as the advancement of education or the prevention or relief of poverty. Where charities whose aims include advancing religion carry out other such aims as a genuine expression of that religion there is no need to include these activities as separate aims. 10. Specific guidance was obtained in a letter from the Charity Commission dated 30 th May 2008 4 in response to a statement by the Scottish Charity Regulator 5. The Scottish regulator stated that if a disposal of land furthers a charity s purposes, then it can be at below the best price reasonably obtainable. It was the Charity Commission s view that this approach was consistent with the law of England and Wales. They also stated that many people would understand that part of the doctrine of Christianity is the assistance of poor and needy people and therefore activities towards those ends could be seen as a means of advancing Christianity. 11. This supports the view that assisting poor and needy people, by providing them with decent affordable homes at below market price, is a demonstration of Christian love. Thus the provision of affordable homes can be seen to be a means of advancing Christianity. Disposal of church land or buildings to a housing association for affordable homes can therefore be in furtherance of a Christian charity s purposes and may then be made at below best price. Trustees need to be satisfied there is a clear link between the charity s stated objects and the provision of affordable housing and should consider taking specific legal advice. 12. Best terms need not be interpreted on the grounds of money alone but can include the needs of the community. Glebe Land 13. Much of the land held by the Church of England was donated in the past by patrons and wealthy parishioners, to provide an income for the incumbent priest this is referred to as glebe land. It is mainly in rural areas. 3 The Advancement of Religion for the Public Benefit Charity Commission, December 2008 4 Appendix I: Text of letter from the Charity Commission (England and Wales) to a participant in the Faith in Affordable Housing project 2008 5 Appendix II: Text of letter from the Office of the Scottish Charity Regulator to Alastair Cameron, Scottish Churches Housing Action 2007 3

14. Section 20 (2B) (c) of the Endowments & Glebe Measure 1976 as amended requires disposals to be on the best terms that can reasonably be obtained. The word "reasonably" has widely established interpretation that the Church Commissioners can reject highest value sales for purposes that would have significant negative impact on the pastoral ministry of the incumbent. 15. This is clarified further in the July 2012 edition of the Parsonages and Glebe Diocesan Manual 6. Section 6 headed 'Church Commissioners' Pastoral Committee's Role'. Paragraph 16 states that the diocese and the Committee may take appropriate account of pastoral considerations The potential effect on the incumbent s ministry by opting for one course of action instead of another could be a relevant pastoral consideration. However, where a proposed sale or lease is "unpopular with parishioners for essentially planning reasons" this "would not normally be, in itself, a conclusive reason against it". However, the Christian obligation and the mission and ministry of the Church in responding to the urgent national need for affordable housing, with the use of its glebe and other nonoperational property, extends of course far beyond any such shallow nimbyism. Factors to be taken into account 16. In 2014, the Church in Wales adopted a policy on the provision of affordable housing on church land 7. The policy recognises that there is a balance to strike between achieving affordable housing schemes and maximising financial returns for other mission and ministry projects. Only if the overall mission of the church will be furthered by disposing of the land at below market value, can the requirement to achieve best price for church land be waived. When considering whether a sale to a housing association represents best value in terms of mission and ministry, these types of factors should be considered: the need for affordable housing in the community the extent to which the proposal allows ongoing church use the track record of the housing association the advantages of a leasehold sale to a housing association as the asset will then eventually revert to the church and a greater level of control can be obtained. Private developers may be less open to a leasehold sale than housing associations. 17. This policy gives an indication of the factors that should be considered by a church when considering disposing of land or buildings for affordable housing at below market price. 18. The disposal of church land or buildings can impact significantly on the church s reputation in the local community. Killin in the Scottish Churches Housing Action report 8 says that churches are 6 Parsonage and Glebe Diocesan Manual Church Commissioners 2012 7 Appendix III: Representative Body of the Church in Wales Affordable Housing Policy Statement 2014 8 Make It Happen, Killin, C. Scottish Churches Housing Action 2006 4

part of the community, and therefore cannot ignore current community needs. Since it was the community that built the church in the first place, each has a responsibility to the other. Even if those living in the community now are not church members, we in the church cannot behave as if only the bottom line counts. If there is a need and desire for affordable housing that the church can help satisfy, then best consideration includes the option of meeting that need. The burden of maintaining and improving church buildings has rested with individual congregations, often for many years. Local people have supported this work directly or indirectly through their own time, money and talents. There have been reciprocal benefits, both material and spiritual, for the church and the community in which it is located. The duty of the trustees to realise best value can be reconciled, in our view, with a social duty to the community which has sustained the church up to now. We believe that the church should consider full value within the context of true stewardship, especially in communities where there is need for affordable housing, combined with an appropriate opportunity for the church to do something practical about meeting this need. (p. 18) Summary 19. Churches are generally obliged to dispose of property on the best terms but this can often be interpreted more widely than top price. If the disposal would further the purpose of the church, then it may be permissible to sell or lease at below best price. 20. There are specific exemptions to the requirement for best terms for the disposal of redundant churches owned by the Church of England. 21. N.B. This advice is given as general guidance but should not be solely relied on. Trustees should consider taking legal advice in specific cases. Faith in Affordable Housing, Housing Justice www.housingjustice.org.uk April 2016 5

Appendix I: Text of letter from the Charity Commission (England and Wales) to a participant in the Faith in Affordable Housing project 2008 Dear Mr Trahair 30 May 2008 Disposal of land by a charity for affordable housing Thank you for your letter and enclosures of 6 May. You have asked for the Charity Commission s views on the contents of a letter sent by Chris Smith of the Office of the Scottish Charity Regulator (OSCR). The OSCR have stated that if a disposal of land furthers a charity s purposes then it can be at below the best price reasonably obtainable. Where the doctrine of a religious denomination establishes as a religious duty that the poor should be helped or those in need relieved activities of this kind may be undertaken in furtherance of the advancement of religion. The Charity Commission would agree that the law of England and Wales is consistent with the above interpretation. If a disposal is being made in furtherance of a charity s purposes, then s.36 (9) of the Charities Act 1993 permits it to be made at less than the best price reasonably obtainable. It is also the case that many people would understand that part of the doctrine of Christianity is the assistance of poor and needy people and therefore activities towards those ends could be seen as a means of advancing Christianity. However, as with all the activities the charity undertakes, it is for the trustees of the Salisbury Diocesan Board of Finance to be satisfied that there is a clear link between the charity s stated objects and the provision of land for affordable housing and that this activity is undertaken in the charity s interests. I hope this is helpful. Yours sincerely Nigel Geary-Andrews Senior Liaison Officer Large Charities Division 6

Dear Alastair Appendix II: Text of Letter from the Office of the Scottish Charity Regulator to Chief Executive, Scottish Churches Housing Action Disposal of charity assets 12 December 2007 Thank you for your letter of the 4 July regarding the above I must apologise for the length of time it has taken to provide a response. In essence your question was can churches that are charities dispose of land or buildings at below the highest possible price to allow the development of social housing. As you are aware charity trustees have a duty to follow the terms of their constitution and act in the interests of the charity for which they are acting as a charity trustee. If the charity s constitution makes it clear that disposals of land or buildings should be at the full realisable market value then the charity trustees should abide by this. If the constitution is silent on the value to be obtained from disposals then charity trustees have to act tin the interests of the charity and the disposal has to either further the charity s purposes or obtain the best financial return. In respect of whether or not the disposal of land or buildings in the circumstances you outline in your letter of 4 July does further the charity s purpose or is in the interest of charity OSCR would offer the following guidance: Furtherance of the charity s purposes If the disposal furthers the charity s purposes then it can be at below the full realisable market value. The difference between the actual price received and the full realisable market value will be the amount the charity has foregone to further its charitable purpose. Where the doctrine of a religious denomination establishes as a religious duty that the poor should be helped or those in need relieved activities of this kind may fall under or be analogous to, the charitable purpose of the advancement of religion. If the charity trustees of a church felt that selling land or buildings for social housing was furthering the advancement of their religion OSCR would not necessarily take issue with that decision, subject to the considerations outlined below under taking the decision. Acting in the interests of the charity If a disposal is not furthering the charity s purposes then the presumption is that it is in the charity s interest to gain the full realisable market value. That said however, there can be situations where considerations other than market return have to be taken into account to determine what is in the interest of the charity. Considerations that might mitigate against obtaining the full realisable market value are if the disposal: Conflicts with the aims of the charity 7

Hampers the charity s work or alienates its supporters Is inappropriate on moral grounds Damages the reputation of the charity Taking the decision It is for the charity trustees, taking any appropriate advice and in the light of their own circumstances, to make a judgement as to whether a particular disposal at below the full realisable market value is furthering their charity s purposes or in the interests of the charity. In making this judgement charity trustees should: Consider the aims and objectives of the charity Keep in mind the principle of maximising return Balance the risk of alienating supporters and damaging the reputation of the charity against the reduced return from the disposal Bear in mind that the further the realised value departs from the full realisable market value the firmer the arguments should be that the value obtained does further the charity s purpose or is in the interests of the charity Consider any tax implications of the disposal With regard to any tax implications OSCR cannot give definitive advice and would recommend charities contact HMRC directly. While we understand that gains on straightforward disposals would be exempt there may be tax issues if the purchaser is connected to the charity or the charity enters into an arrangement to share in the profits of any development. It is unlikely that charity trustees will be criticised regarding disposal if they have considered the correct issues, taken appropriate advice and reached a rational decision, with the decision making process appropriately recorded. I trust the above is helpful and again apologise for the time it has taken to reply. Chris Smith Senior Compliance Support Officer 8

Appendix III: Representative Body of the Church in Wales Affordable Housing Policy Statement 2014 REPRESENTATIVE BODY OF THE CHURCH IN WALES Affordable Housing Policy Statement Introduction This document sets out the policy of the Representative Body of the Church in Wales towards the provision of affordable housing on its land. Guiding Principle Helping people in need is a clear Christian duty. Welsh society faces challenging issues in relation to providing decent, affordable housing for people in need. The Representative Body of the Church in Wales believes that seeking to use its assets to address housing need can further the mission and ministry of the Church. Achieving such opportunities is, therefore, a high priority for the Church. What are Affordable Housing Schemes? Affordable Housing schemes take many forms but invariably consist of a Registered Social Landlord (usually a Housing Association) seeking to build dwellings on land and for those dwellings to be occupied by a defined sector of society. This usually means those in housing need (homeless, low incomes etc.) and who have a connection with a particular location or community through family or work. People occupy the dwellings on a variety of forms of tenure but usually these are either via a tenancy or by some form of shared equity scheme (where the occupier contributes a percentage of the equity and pays a rent for the remainder). These schemes are funded usually by Government Grant (Social Housing Grant) and loans secured against future rental income. Increasingly, there are investment schemes being developed to contribute part of the finance in lieu of grants. Church Property Church property is held by the Representative Body in trust and therefore the interests of the beneficiaries must always be upheld. Different types of property have differing types of beneficiary so one rule cannot be adopted for all Church property. The following is a basic summary: Churches and Churchyards are held by the Representative Body but managed by the local Parish. The receipts from capital sales and other property income are due to the Representative Body but, broadly, the Constitution provides for this to be passed to the Parish or invested for the continued upkeep of the church or churchyard (refer to Church Sales Regulations for details). 9

Parsonages are held for the benefit of each diocese so that receipts from sales and other income are retained in an Improvement Fund to provide for the purchase and improvement of parsonages. Glebe land is held for the benefit of the Province so that receipts from sales and property income are retained centrally to provide grants for church repair. Investment property is held to provide for the pension scheme and other costs of the Church in Wales as a whole. Whilst achieving affordable housing schemes on church land is a high priority, maximising financial returns for other mission and ministry projects can be more important at a particular time. Each case will be considered on its particular merits. Disposal of Church Property for Affordable Housing Charity Law dictates the rules by which Charities can dispose of land and property, in particular the need to demonstrate that best value is achieved for the Charity in its property dealings. In general terms, this means the best monetary value that can be achieved for the Charity by sale on the open market. This monetary imperative can only be tempered if the sale can be shown to further the overall mission of the church. The majority of affordable housing is provided in Wales by Housing Associations as Registered Social Landlords. Thus, achieving affordable housing schemes on church property will usually necessitate a transfer by sale or lease to a Housing Association. The nature of affordable schemes means that substantial background work is needed to assess viability and local housing need prior to it being possible for Housing Associations to make an offer to purchase or lease land. The Representative Body will work in partnership with Housing Associations to investigate and bring forward appropriate sites for the development of affordable housing. It is accepted that this will mean negotiating private sales of land rather than through open marketing. In all cases, however, the Representative Body will obtain professional valuation advice from a Chartered Surveyor to compare the market value of a site against the price offered by a Housing Association. Where the Housing Association offer is below the assessed market value, the Property Committee of the Representative Body will consider whether a sale to the Housing Association represents best value in terms of the mission and ministry of the Church in Wales. The following factors will be considered: The findings of a report in accordance with the Charities (Qualified Surveyors' Reports) Regulations 1992 by the Head of Property Services (a Chartered Surveyor) as to whether the proposal is in the best interests of the charity Whether the development fulfils a clear need within the community. This might include enabling communities to be more inclusive or contributing to the eradication of poverty in communities. The extent to which the proposal enables ongoing and sustainable church use such as where part of a building or site is converted for affordable housing use and part remains in worship use especially where the building might otherwise close for worship. This situation clearly continues ministry whilst furthering mission by breathing new life into a community. It also removes a substantial liability from the Parish. 10

Whether the sale of the land for affordable housing can be demonstrated to be the best monetary value option anyway (such as Exception Sites where only affordable housing is possible under planning policy). A leasehold sale can be attractive as the Church can benefit from future reversionary value and where a greater level of control can be imposed. Measures should be put in place to prevent occupiers of the property gaining a right to buy the property (thus ensuring the Church protects its reversionary value) Whether the proposal forms part of a larger development of open market housing this can produce monetary and social benefits and is often a requirement of development consents The proven track record of the Housing Association to deliver high quality schemes The views of the appropriate Diocesan bodies over the need for the proposed development Any restrictions on the title to the property, which prevent such use such as conditions set by the original donors ( reverters ). Affordable Housing Schemes on Church Land Clearly, each development will be different and depend on local needs and conditions. However, where schemes are proposed on church land, the Representative Body will wish to make sure of certain key issues: That the development will be of high quality meeting or exceeding Welsh Government Design Quality Requirements. Ensuring proper space provision for families is an important priority. That developments will be well planned with good provision of open space and amenity areas That the tenure arrangements meet needs and are well balanced. Generally the Church would wish to see social rented housing developments on its land but accepts that a mixed scheme with some shared equity housing may be good for the social mix of the development. However, the Church would want to be satisfied that all developments will provide permanent affordable housing. It is acknowledged that schemes will increasingly need to be a mix of development methods including social rented, commercial sale and shared equity. The Church will be imaginative in its approach. Agreed by the Representative Body of the Church in Wales March 2014 11