Managing Trustees selling land or buildings are often asked by a potential buyer to allow the buyer time to undertake various investigations before they are in a position to exchange contracts. Such an arrangement may be documented in an “Exclusivity” Agreement or a “Lock Out” Agreement.

The advantage to the buyer is clear; they have a period of time to organise their funding, carry out searches and surveys knowing that there is no chance they will be gazumped. However, the benefit to Managing Trustees and the Church is less clear.

If presented with such a request by a buyer for exclusivity what should Managing Trustees do?

  1. Speak to their solicitor. Ask for advice on exactly what the request would mean to the Church. Is it a 4 week period for searches and funding or is it time to apply for and obtain planning permission? Is the buyer offering to pay a fee for the exclusivity period? If not, why not?
  2. Speak to their surveyor asking for advice on the property market and the proposed terms of the exclusivity period. Is it reasonable in the circumstances? What does the surveyor advise is the likelihood of other offers for the property being received? Should the Managing Trustees agree to take the property off the market entirely during the exclusivity period or instead to agree not to “deal with” any other interested parties? Are there any site specific complications such as the existence of Japanese knotweed?  Is the property listed or in a Conservation Area? Would any of these factors affect the surveyor’s advice?
  3. Be mindful that selling agents receive commission when property is sold. They have a clear interest in securing a sale.  Selling agents may not be aware of the duties upon Managing Trustees set out in the Model Trusts and charity law. A surveyor who is not connected to a selling agent may be more impartial when giving advice.
  4. What do Standing Orders and the Model Trusts say? Model Trust 16 requires Managing Trustees to obtain the “best price” when disposing of an asset. Managing Trustees should consider whether the buyer’s request represents the best deal and price for the property. Will the surveyor be able to provide the required “best price” and adequate marketing certificate?
  5. What are the requirements of charity law? As charity trustees the Managing Trustees must comply with their statutory duties. These duties include an overriding duty to act in the best interests of the charity and to achieve the best terms for the sale of the property. Should the property remain on the open market until exchange of contracts to secure the best price?  The surveyor should advise.  

As prudent trustees, Managing Trustees will always consider whether it is in the best interests of the Church to agree to an exclusivity period.  To help the Managing Trustees reach a decision professional advice is key.

What happens next:

If having taken professional advice the Managing Trustees consider it is in the best interests of the charity to agree to enter into an Exclusivity Agreement then the following steps should be taken:

Any Exclusivity Agreement or Lock Out Agreement should always be in writing. It should be treated in the same way as a contract for sale. It should always be drafted by the Managing Trustees’ solicitor and reviewed by TMCP.

If the buyer offers to draft any documentation to save the Managing Trustees costs beware! It can take longer to amend an agreement drafted by a buyer’s solicitor than to have the Managing Trustees’ solicitor draft the agreement. Bear in mind the panel of solicitors understand the requirements of the Methodist Church and charity law which a buyer’s solicitor will not.  Perhaps the solution is to agree that the buyer will pay the Managing Trustees’ legal and surveyor’s fees as part of the deal for the Managing Trustees’ agreement to the exclusivity period.

What can go wrong?

If the buyer wants to apply for planning permission during the exclusivity period and this is refused then potentially the property is blighted. This could mean the buyer does not proceed or having planning permission refused can devalue the property, making it more difficult to sell.

While an Exclusivity Agreement is being negotiated and in force the property remains the responsibility of the Managing Trustees. They must continue to insure, inspect and maintain the property.

Managing Trustees require clear advice on their obligations under the Exclusivity Agreement so that they can be sure that they only agree to obligations they can fulfil and know what they have to do once the exclusivity period starts. In some cases Managing Trustees have been asked to sign Exclusivity Agreements that seek to make them liable for the buyer’s costs and losses if they do anything in breach of their contractual obligations.

Managing Trustees should be clear – the buyer should not be allowed into physical occupation of any property before a sale is completed.  If access is required to prepare drawings for example, the buyer or their representative should always be accompanied by the Managing Trustees or their agent. Does the Managing Trustees’ solicitor recommend a separate licence agreement setting out the terms of any access?

Managing Trustees should be aware that a Lock Out or Exclusivity Agreement is not the same as a contract for sale. When the exclusivity period comes to an end both parties can walk away. Managing Trustees should consider what would happen if the buyer did not proceed.

If you have any queries or questions in relation to the guidance in this document please contact TMCP Legal for further assistance. Our Legal Officers can offer additional guidance and support to help Managing Trustees is this situation.