Non-Residential Lease (Landlord) Guidance for Solicitors

You have received instructions to act in relation to the grant of a lease of charity property held on the Model Trusts of the Methodist Church (Model Trusts). Whilst you have been instructed by the managing trustees (Managing Trustees) of such property (Property), the Trustees for Methodist Church Purposes (TMCP) hold legal title to the Property as Custodian Trustees. Please read these guidance notes carefully as they contain important information about the charity law and Methodist law, policy and best practice requirements that must be fulfilled and the procedures that must be followed when acting for Managing Trustees in relation to the grant of a lease.

A1 Brief description of roles

TMCP is a body corporate, established under the Methodist Church Act 1939 and are Custodian Trustees in whom legal title to Model Trust Property is vested. TMCP has no beneficial interest in the Property and plays no part in the day to day running and administration of the local charity for whom you are acting. TMCP is not a charity trustee.

TMCP holds the legal title on trust for the Managing Trustees. TMCP is obliged to concur with and act upon the lawful instructions of the Managing Trustees to enable them to administer the charity effectively. It is the Managing Trustees who have responsibility for the day to day control and management of the Property. The Managing Trustees are the charity trustees. Please bear in mind that your client’s role as charity trustees means that they have to comply with higher fiduciary duties in dealing with the Property than you may be used to with your commercial clients.

The role of TMCP Legal in relation to the proposed lease is to ensure that the Charities Act 2011 as amended (2011 Act), trust law and Methodist law, policy and best practice requirements and procedures relating to a lease of property held on the Model Trusts have been met. In addition TMCP will ensure the transaction is compliant with the general law because the terms of the lease must be in the best interests of the charity. If you would like any further guidance to help you achieve this please do not hesitate to contact TMCP.

As the Managing Trustees’ legal representatives, your clients are relying on you to advise them on the technical and legal aspects of the lease transaction to ensure that the proposed lease and any ancillary issues are dealt with in such a way that it can only be in the best interests of the charity. They are also relying on you to ensure that their transaction is managed in a way that has due regard for the charity law and Methodist law, policy and best practice requirements and procedures so that the matter can proceed to conclusion as smoothly as possible.

A2 Charity property

As the Property is charity property and the charity is a non-exempt charity, sections 117 to 123 of the 2011 Act will apply to the lease. The requirements set out in sections 117 to 123 must be fulfilled before TMCP can confirm approval to the lease.

A3 Process to be followed

Given the requirements under the 2011 Act, trust law and Methodist law, policy and best practice as well as the role of the Custodian Trustee, there is a set procedure that must be followed in relation to leases of Methodist Model Trust Property. To assist you we have set out the requirements in Section B and provided template 2011 Act and Methodist law and policy compliant clauses in the Non-Residential Lease (Landlord) Template Clauses that MUST be included in the lease. Please read Section B5 and the Template Clauses carefully before preparing the lease so that you can ensure that the approval of TMCP will be forthcoming. Once the requirements have been fulfilled and evidence provided to TMCP, TMCP can approve the grant of the lease in its capacity as Custodian Trustee. 

You must not proceed to complete the lease until TMCP Legal confirm TMCP’s approval to proceed. TMCP’s approval will be only be given once all the charity law and Methodist law, policy and best practice requirements for the transaction set out in Section B have been satisfied.

If you would like any further guidance to help you achieve approval please do not hesitate to contact TMCP Legal.

A4 Further information

In addition to this guidance note, you may find the following guidance of assistance in relation to the proposed lease:

• Non-Residential Lease (Landlord) Template Clauses
• Non-Residential Lease (Landlord) Heads of Terms
• Non-Residential Lease (Landlord) Guidance for Managing Trustees
• Non-Residential Lease (Landlord) FAQs
• Template DAR and the accompanying guidance available from the webpage

Please also note the following documents that are available from TMCP on request:

• Template Heads of Term (in Word)
• Standard Short Lease

The documents listed at B2, B3, B4 and B5 must be submitted to TMCP for approval.

Please ensure that the following steps are fulfilled and forward evidence of this to TMCP before asking for approval to proceed to completion.

B1 District consent

The lease must be logged as a “project” on the Methodist Property Consents Management System (Consents Website).  This is the responsibility of your clients, the Managing Trustees. Once the project is logged, the necessary Methodist consents will be entered. Please note that the consents entered here are quite separate to the approval of TMCP. The final consent that is required, is usually but not always that of the District and must be in place before TMCP can approve completion. The lease will normally have been logged as a project before you are instructed and the Managing Trustees, your clients, will be able to keep an eye on when final consent is entered.

B2 Professional Advice

The requirements prescribed by the 2011 Act depend upon the length of the term of the lease:

B2.1 Leases for more than 7 years

2A. Designated Advisors' Report (DAR) approved by TMCP (s.119 of the 2011 Act)

Leases for more than 7 years are treated under the 2011 Act in the same way as a sale. Before marketing the property or commencing negotiations with a new or existing tenant for a new lease the Managing Trustees must obtain and consider a full DAR prepared by a Designated Advisor and the DAR must be approved by TMCP. To be approved, the DAR must address the requirements set out in Regulation 4 of The Charities (Dispositions of Land: Designated Advisers and Reports) Regulations 2023 (2023 Regulations).  As part of this advice the Designated Adviser needs to comment on the proposed lease terms and make their recommendations bearing in mind the parameters set by Methodist law and policy as highlighted in the Non-Residential Lease (Landlord) Heads of Terms.

B2.2 Leases  for 7 years or less 

2B. Competent advice approved by TMCP (s.120 of the 2011 Act)

Before marketing the property or commencing negotiations with a new or existing tenant for a new lease the Managing Trustees must obtain and consider “competent” advice. It is TMCP policy, following Charity Commission recommendations that the advice must be in writing and provided by a Designated Adviser. It should set out the Designated Adviser’s recommendations for the terms of the lease having seen theNon-Residential Lease (Landlord) Heads of Terms:

• Whether it is in the best interests of the charity to enter into a lease of the property in question
• The level of market rent
• Whether the Surveyor has any particular recommendations for the lease including; the length of term; rent review; service charge; liability for repairs

If the professional advice will be more than six months old by completion, TMCP will require sight of an updated DAR/ competent advice or written confirmation from the Designated Adviser on the firm’s headed paper that the advice and contents of the original QSR or competent advice remain valid. This is TMCP policy on recommendation of the Charity Commission. 

B3 Confirmation of market rent and best terms reasonably obtainable (Model Trust 16(1)(b) and s.120(2)(b) of the 2011 Act)

The Managing Trustees must obtain a letter signed by the Surveyor confirming, assuming they are able to, that the agreed rent is no less than market rent and the lease terms are the best that can reasonably be obtained for the charity and, if the lease is for more than 7 years; that the Property has been adequately marketed.

Please note that the agreed rent cannot be less than market rent under the policy of the Methodist Council. Your drafting will need to ensure that the rent payable by the tenant mirrors the Designated Adviser’s recommendations as to market rent. For example, if the figure is exclusive of rates, utilities and service charge the lease will need to include covenants to pay rates, utilities and service charge in addition to the covenant to pay the agreed market rent figure. If your instructions are any different, then please contact TMCP as soon as possible so that we can discuss the position with you and the Managing Trustees in context of this particular project. 

B4 Connected Persons

TMCP requires confirmation from you as to whether or not the proposed tenant is a connected person within the meaning of section 118 of the 2011 Act.

If the tenant is NOT connected, please complete the Connected Person Certificate with details of the tenant and Managing Trustees and arrange for this to be signed by the tenant. This will need to be sent to TMCP with confirmation that as far as you and your clients are aware the statement is correct.

If the tenant IS connected, a charity commission order will be required and the template connected statement set out in paragraph 5.9 of the Non-Residential Lease (Landlord) Template Clauses will be required in the lease. If an order is required this must be in place before TMCP can approve completion.

B5 Approval of lease and any ancillary documents

TMCP’s approval to the lease (and any ancillary documents such as a Licence for Alterations or Rent Deposit Deed) is required before completion. To obtain approval to the lease, please ensure that the lease;

• includes all the template Methodist and Charities Act 2011 clauses;
• complies with the Non-Residential Lease (Landlord) Heads of Terms; and
• reflects the recommendations of the Designated Adviser in the DAR or competent advice (as required by the length of term of the lease). Please refer to Section C for detailed guidance on the form of lease.

If any ancillary lease documents are required please note that TMCP will need to be party to and seal such documents. The documents will need to include specific template clauses and be approved by TMCP. Please contact TMCP so that we can provide the required clauses.

B6 Consent of the Connexional Team to lease terms of 10 years or more

If the proposed lease term is more than 10 years, the consent of the Connexional Team will be required. TMCP will deal with the request on behalf of the Managing Trustees.

To assist Managing Trustees’ solicitors TMCP Legal has included detailed guidance notes on the requirements for a non-residential lease. Please note the following points before drafting the lease and sending it to TMCP Legal for review to ensure that TMCP’s approval to the lease will be forthcoming.

C1 What must an approved lease include?

For the lease to be approved by TMCP Legal, it is necessary to ensure from a Custodian Trustee point of view that (1) the required template 2011 Act and Methodist lease clauses have been incorporated, (2) the lease is drafted in accordance with Methodist law together with accompanying policy and best practice and (3) the lease accords with the recommendations of the Managing Trustees’ Designated Adviser.

In addition, TMCP Legal will ask you to confirm that your advice to the Managing Trustees is that the lease is drafted in the best interests of the Charity and the terms of the lease have been explained to the Managing Trustees and the Managing Trustees are happy with them.

Ultimately the Managing Trustees are relying upon you as their solicitor to ensure that the lease is drafted in the best interests of the Charity and provided that it also satisfies 1 to 3 above there is no reason why approval would not be given.

Managing Trustees’ solicitors should ensure that the lease meets the three requirements before sending it to TMCP for approval. If you are unsure of the requirements please ask to speak to the legal officer dealing with the lease.

C2 Template clauses

The lease must include the Non-Residential Lease (Landlord) Template Clauses. Please note that the interpretation clauses and 2011 Act and Methodist Law Statements must be included in the body of the lease. The only amendments that should be made to the template clauses, unless otherwise indicated, are amendments required to take account of differences in terminology between a firm’s precedent documents and the template clauses i.e. use by you of the term “Lessor” as opposed to “Landlord”.

C3 Non-Residential Lease (Landlord) Heads of terms

The Non-Residential Lease (Landlord) Heads of Terms (Heads of Terms) set out the standard terms on which the Property can be let. These Heads of Terms have been approved by the Conference Office of the Methodist Church and reflect the requirements under Methodist law, policy and best practice on leasing Methodist Model Trust Property. Using the Heads of Terms when negotiating a new lease should assist Managing Trustees and their professional advisers in understanding the terms on which Property can be let.

Whilst this should help Managing Trustees and their Designated Adviser to negotiate lease terms that are in compliance with Methodist law and the accompanying policy and best practice, please do check whether any matter specific heads of terms that you are provided with when instructed comply with the Heads of Terms so that you can address any conflicts as soon as possible. The Heads of Terms will also help you to draft a lease that complies with Methodist law, policy and best practice from the outset.

If you have any queries please contact TMCP Legal. Otherwise please ensure that the lease you have drafted complies with the Heads of Terms before submitted it for approval.

C4 Designated Adviser's recommendations

The lease must accord with the recommendations of the Designated Adviser in the professional advice, whether that is a full DAR or competent advice as discussed in Section B2. The surveyor should have already been provided with a copy of the Non-Residential Lease (Landlord) Heads of Terms beforehand.

Please note:

• If you have not yet been provided with a copy of the DAR (or competent advice) by your clients then please ask for a copy before you start to draft the lease.
• TMCP cannot approve the lease unless the terms of the lease reflect the Designated Adviser's recommendations.
• If the Managing Trustees have negotiated terms that conflict with the Designated Adviser's recommendations, then this will need to be addressed in early course to avoid delays later.
• Any departures from the professional advice of the Designated Adviser will require the Designated Adviser's confirmation that such departures are in the best interests of the charity. Speak to the Designated Adviser if you disagree with the advice given and decide together how the Managing Trustees should proceed in the best interests of the charity.

C5 Role of the TMCP Board as Landlord

The Landlord is the TMCP Board and the Managing Trustees together. As Custodian Trustees, the Board will not give any covenants nor undertake any obligations in the lease. Neither will TMCP as Custodian Trustee get involved in the day to day administration of the charity or management of the property. However, as the Landlord is the TMCP Board and the Managing Trustees together, the Landlord needs to be able to exercise any rights granted and benefit from any indemnity covenants etc. A distinction between the roles of the TMCP Board and the Managing Trustees should only be made where necessary; references to the Landlord’s adjoining property would be to the; “Board’s Adjoining Property”. It is the Managing Trustees who will insure and in terms of day to day running and management issues it is the Managing Trustees that the tenant will need to give notice to and seek approvals from. If in doubt please leave as “the Landlord” and the legal officer dealing with the matter will make any distinctions required.

In terms of liability, the TMCP Board will be relying on paragraph 4.7 of the Non-Residential Lease (Landlord) Template Clauses. Please consider including an appropriate clause to limit the personal liability of your clients, the Managing Trustees.

C6 Execution clause

Please note that the execution formalities change depending upon whether the lease is for 22 years or more. Leases for a term of 22 years or more will need to be executed by two Managing Trustees duly authorised by a resolution passed by the Managing Trustee body under Section 333 of the 2011 Act AND sealed and signed by two Members of the Board of TMCP.

For leases under 22 years, the Managing Trustees are duly authorised to sign lease on behalf of the TMCP Board and such leases, the majority of non-residential leases, can therefore be executed by two duly authorised Managing Trustees once TMCP has given its approval.

D1 Approval to proceed to completion

Completion of the lease cannot take place until TMCP has confirmed that all the requirements set out in Section B have been fulfilled and subject to your clients’ final instructions that the the lease can be completed. 

Whereas some leases complete immediately on this confirmation being provided, there are cases where there is a delay, perhaps on the part of the tenant or otherwise. TMCP’s approval will last for a period of ONE MONTH from the date that approval is given. If the lease does not complete within this month you will need to contact TMCP again and ask for new approval. At this stage please confirm why there has been a delay and whether there have been any material changes since approval was last given. If the professional advice or any updates to it are more than 6 months old a further update will be required. 

D2 Authorised Managing Trustees

As explained in Section C6, the Managing Trustees have the power to sign leases of a term under 22 years on behalf of the Landlord.  Those Managing Trustees signing the lease must however be duly authorised Managing Trustees.

Your clients should have arranged for a resolution to be passed under s.333 of the 2011 Act authorising at least two of the Managing Trustees to sign documents relating to this particular transaction or to property transactions in general. You may want to check that such a resolution is in place in early course to avoid delays when the lease is sent out for signature.

You should satisfy yourself that those signing are charity trustees and have been duly authorised by the relevant managing trustee body. If the managing trustee body is a registered charity you can check who the registered charity trustees are on the Charity Commission website.

D3 Completion timescale

When agreeing a completion date with the tenant please bear in mind that TMCP generally require at least 10 working days between confirming that the requirements under Section B have been met and completion. This is to allow sufficient time for the TMCP Board to seal the lease (if 22 years or more) and any ancillary lease documents. Availability of signatories at short notice cannot be guaranteed.

D4 Exclusion of sections 24 to 28 of the Landlord and Tenant Act 1954

All leases of Methodist Model Trust Property should be excluded from the security of tenure provisions of the Landlord and Tenant Act 1954 (1954 Act). The Managing Trustees are relying on you to ensure that sections 24 to 28 of the 1954 Act are effectively excluded. You will need to draft and serve an appropriate Landlord’s Notice and procure the required Tenant’s Statutory Declaration before completion. Please note that the Landlord is both the TMCP Board and the Managing Trustees. You must draft the Notice correctly taking on board the way that the Landlord is described in the Non-Residential Lease (Landlord) Template Clauses. TMCP Legal will ask for a certified copy of the Notice and Declaration after completion.

E1 Post completion

Following completion please send to TMCP:

• Confirmation that completion has taken place;
• Certified copy of the completed counterpart lease and any ancillary lease documents;
• Certified copy Landlord’s Notice and Tenant’s Statutory Declaration;
• Invoice or note of your firm’s fees for acting for the Managing Trustees in this matter.

E2 Future dealings with the lease

If you are instructed in relation to a Licence to Assign or Sublet or if the tenant seeks landlord’s consent to carry out alterations or any other ancillary matters with regards to the lease, please note that TMCP will need to approve any ancillary lease documents as Custodian Trustees under Standing Order 930(3) and on behalf of the Connexional Team under Standing Order 931(3). TMCP will also need to be party to such documents and arrange for them to be sealed and signed by two Members of the Board of TMCP.  Any ancillary lease documents will need to include the template clauses available from TMCP on request.

 

Please note that this document is to provide guidance and assistance to Managing Trustees and their professional advisers. This guidance note is general in nature, may not reflect all recent legal developments and may not apply to the specific facts and circumstances of any particular matter.   Also note that nothing within the documents and guidance notes provided by TMCP nor any receipt or use of such information, should be construed or relied on as advertising or soliciting to provide any legal services. Nor does it create any solicitor-client relationship or provide any legal representation, advice or opinion whatsoever on behalf of TMCP or its employees.   Accordingly, neither TMCP nor its employees accept any responsibility for use of this document or action taken as a result of information provided in it.   Please remember that Managing Trustees need to take advice that is specific to the situation at hand. This document is not legal advice and is no substitute for such advice from Managing Trustees' own legal advisers.