Finding your way around the Non-Residential Lease (Landlord) Guidance for Managing Trustees
- Section A is a general introduction to non-residential leases and the role of TMCP
- Section B sets out the first steps to take in the lease process
- Section C sets out the Charity and Methodist law and policy requirements for non-residential leases and the practicalities of fulfilling the requirements
- Section D takes you through the practicalities of completion
- Section E discusses points to consider following completion
As Managing Trustees you may find that you have surplus space from time to time and decide to let it out.
This guidance note aims to assist Managing Trustees in navigating the Charity law and Methodist law, policy and best practice requirements that must be followed before model trust property can be let on a non-residential lease. The guidance gives an outline of what steps the Managing Trustees need to take.
A2 The role of the Trustees for Methodist Church Purposes (TMCP)
So why does TMCP need to be involved in the grant of a lease? Although the Managing Trustees have responsibility for managing the property, they are not the legal owner of it. The legal title to the property is vested in the Trustees for Methodist Church Purposes (TMCP), as Custodian Trustees. TMCP holds property under the Model Trusts of the Methodist Church Act 1976, on trust for the local Managing Trustees. This means that TMCP needs to be party to the lease documents. Under Standing Order 930(3) TMCP is required to give approval to all matters where it is Custodian Trustee. TMCP is therefore required to approve the substance of the transaction in accordance with Standing Order 930(3) and must also approve the documents on behalf of the Connexional Team under Standing Order 931(3).
TMCP is obliged to concur with and act upon the lawful instructions of the Managing Trustees to enable them to administer the charity effectively. To this end TMCP will work with you and your solicitors to ensure that the lease complies with the Charity law and Methodist law, policy and best practice requirements set out in the Non-Residential Lease (Landlord) Checklist and Section C of this guidance note. This should also help you to ensure that your duties as managing trustees and charity trustees have been fulfilled and enable TMCP to concur in the grant of the lease.
A3 Existing tenants
Please note that the requirements summarised in the Non-Residential Lease (Landlord) Checklist also apply to the grant of a new lease to an existing tenant.
It may be that your existing tenant is what is known as a “protected” tenant meaning that they have a statutory right under the Landlord and Tenant Act 1954 (1954 Act) to a new lease at the end of the term. Such a new lease can be referred to as a “renewal lease”. Alternatively, if the current lease is excluded from sections 24 to 28 the 1954 Act, the tenant does not have an automatic right to stay or the right to apply to the court for a new lease on the same terms. However, you may have decided that you want to grant a new lease. The second scenario gives Managing Trustees more options and flexibility in terms of negotiating the new lease terms but whether the tenant is protected or not, the charity law and Methodist law and policy requirements must be fulfilled.
A4 Further information
You may also find the following guidance of assistance in relation to the proposed lease:
Before a tenant has been found or when Managing Trustees decide they want to grant a new lease to an existing tenant, there are various things that they can do in terms of fulfilling the charity law and Methodist law, policy and best practice requirements to ensure that TMCP’s approval will be forthcoming.
Step 1 - Logging the lease as a project on the Methodist Property Consents Management System (Consents Website)
The first step is for Managing Trustees to log a project on the Consents Website. The appropriate consent giving bodies (usually the Church Council, Circuit Meeting and District Trustees but occasionally the Connexional Manse Trustees or the Methodist Council) will indicate their consent to the principle of the lease via the Consents Website. Final consent must be in place before TMCP can approve the grant of the lease.
- If the lease is of part you will need to create a new property record for the part being let against which the new project can be logged
- It is the responsibility of Managing Trustees to ensure that the project record is completed and final consent has been given to the project. Your Superintendent will be able to assist you with this. If you have any further queries, you can contact the Consents Team.
- In respect of circuit, district and Connexional property, the required approval at each level must be given by a different person so that the project record will show approval and support to the project by three different people.
- Note that final consent is quite different to TMCP’s approval to the substance of the transaction required by Standing Order 930(3).
- Even if the lease is a renewal lease or new lease to an existing tenant, a project must be logged for the new lease.
- If the tenant wants to carry out any works, please check whether you also need to log a “works” project. If the proposals involve any structural or external works, planning permission or Building Regulations approval or the works are to a listed building or property in a Conservation Area, then a project would need to be logged and final consent obtained before completion. In this case the lease would usually be accompanied by a Licence to Carry out Works or Alterations, unless provisions were included in the lease itself.
Once the project has been logged, please ensure that you use (and ask your Solicitors to use) the project ID number when you contact TMCP.
Step 2 – Professional advice
Before marketing the property or commencing negotiations with a new or existing tenant for a new lease, you must obtain and consider professional advice. The advice will confirm whether Managing Trustees should proceed with the proposed lease and what terms should be negotiated with the tenant including the level of rent. Managing Trustees will need this advice to ensure that they are acting in the best interests of the charity.
Please let your surveyor have a copy of the Non-Residential Lease (Landlord) Heads of Terms as the requirements under Methodist law and accompanying policy may impact on the valuation of market rent.
The form that this advice must take depends on the length of term of the lease. If the term of the lease is 7 years or less, the Managing Trustees must obtain “competent” advice. A full Qualified Surveyor’s Report (QSR) is required if the lease term is for more than 7 years. The requirements are:
- 7 years or less - competent advice – this must be in writing and provided by a surveyor. A simple letter would suffice setting out the surveyor’s recommendations for the lease terms. It should confirm:
- 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 (having regard to the Methodist law, policy and best practice considerations set out in the Non-Residential Lease (Landlord) Heads of Terms) including; the length of term; rent review; service charge; liability for repairs.
- more than 7 years - full QSR – this must be in a prescribed form, prepared by a qualified surveyor and address all nine paragraphs of the Charities (Qualified Surveyor’s Reports) Regulations 1992. Please see the QSR Focus Note for guidance on who can prepare a QSR and what it must contain. Please note that a QSR is confidential to the Managing Trustees and must not be disclosed to a potential tenant.
Once the advice has been prepared it needs to be sent to TMCP for approval. Only once approval has been given can the property be marketed or should negotiations commence with the tenant in accordance with the professional advice.
If the professional advice will be more than six months old by the time the lease is going to complete, TMCP will require an update from your surveyor or confirmation that the original advice remains valid on the firm’s headed paper. This is TMCP policy based on recommendations made by the Charity Commission.
Step 3 Negotiating terms
Before negotiating terms with a new or existing tenant Managing Trustees need to consider the professional advice (approved by TMCP) and the Non-Residential Lease (Landlord) Heads of Terms. This will help you to ensure that they negotiate terms that are in the best interests of the charity as recommended by their surveyor and that terms that are in compliance with Methodist law and accompanying policy. Ideally the terms should also reflect Methodist leasing best practice as set out in the Non-Residential Lease (Landlord) Heads of Terms.
Step 4 Instructing a solicitor
Whilst TMCP, as Custodian Trustees, are responsible for overseeing the transaction and to help ensure the lease is conducted in accordance with charity/trust Law and Methodist law, policy and best practice, Managing Trustees will need to instruct a solicitor to deal with the legal aspects.
Managing Trustees need to provide their solicitors with a copy of TMCP’s Non-Residential Lease (Landlord) Guidance for Solicitors and Non-Residential Lease (Landlord) Heads of Terms so that they are aware of the Charity law and Methodist law, policy and best practice requirements. Managing Trustees should also ensure that their solicitor has a copy of the approved QSR or competent advice.
If Managing Trustees would like guidance on choosing a solicitor or agreeing fees please refer to the Instructing a Legal Adviser Focus Note.
Once Managing Trustees have found a tenant and are satisfied that they have negotiated the best terms reasonably obtainable for the charity in accordance with the professional advice, the steps set out in Section B have been taken and they have instructed a solicitor, they need to ensure that all the outstanding requirements set out in the Non-Residential Lease (Landlord) Checklist are fulfilled.
Managing Trustees should ask their solicitors to contact TMCP Legal as soon as possible so that the legal officer dealing with the lease can work through the outstanding charity law and Methodist law, policy and best practice requirements with them, particularly approval of the lease, in readiness for completion.
C1 Final Consent Standing Order 930(4)(ii)
Your final consent giving body is copied into all correspondence and will enter final consent when they deem it is appropriate to do so, if they have not done so already. Final consent to the project must be entered before approval to the grant of the lease can be given. (See Step 1 in Section B)
C2 Professional advice s.119 or s.120 of the 2011 Act
Managing Trustees should already have obtained TMCP’s approval to the professional advice. If they have not done so already they should ensure that they obtain the competent advice or QSR as required and send a copy to TMCP without delay. (See Step 2 in Section B)
C3 Confirmation of market rent and best terms reasonably obtainable s.120(2)(b) of the 2011 Act
Once a tenant has been found and/or terms negotiated, please send TMCP a copy of a letter signed by the surveyor confirming 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.
TMCP Legal will need to confirm that this is acceptable before approval to the grant of the lease can be given.
Please note that the agreed rent cannot be less than market rent under the policy of the Methodist Council and there are no exceptions to this policy in respect of non-residential leases.
C4 Connected Persons s.117(2)(a) of the 2011 Act
Your solicitors will be asked to confirm whether the tenant is connected to the charity within the meaning of s.118 of the 2011 Act.
If the tenant is NOT a connected person TMCP will ask your solicitors to arrange for the tenant to sign a correctly completed Connected Person Certificate (available on the TMCP website or from TMCP direct) to confirm this to be the case. Your solicitors must provide a copy of the signed certificate to TMCP with confirmation that as far as they and Managing Trustees are aware the tenant is not connected.
If the tenant IS a connected person Managing Trustees will need to apply to the Charity Commission for an Order authorising the lease. The application is made online.
The Charity Commission website also includes helpful guidance for Managing Trustees on the process. Your solicitors should be able to help you make the application to the Charity Commission if you are unsure.
TMCP will need to see a copy of the Charity Commission Order before approval to the grant of the lease can be given.
C5 Approval of the lease Standing Order 930(3) and 931(3)
Your solicitors must obtain TMCP’s approval to the lease (and any other lease documents that may be required) before TMCP can concur with the grant of the lease.
To help Managing Trustees’ Solicitors to draft a lease that complies with charity law, Methodist law, policy and best practice that can be approved without delay, detailed guidance is provided in the Non-Residential Lease (Landlord) Guidance for Solicitors and Non-Residential Lease (Landlord) Template Clauses. It is important that Managing Trustees’ Solicitors contact TMCP to ensure that they have up-to-date Non-Residential Lease (Landlord) Template Clauses (being the template Methodist and 2011 Act clauses that must be included in the lease), Non-Residential Lease (Landlord) Guidance for Solicitors and Non-Residential Lease (Landlord) Heads of Terms. TMCP will help your solicitors to put the documents in an approved form.
D1 TMCP's approval
There is no reason why TMCP would not concur with the grant of the lease under Standing Order 930(3) once all the requirements set out in Section B and Section C of this guidance note have been fulfilled.
D2 Memorandum of Consent
Once TMCP has confirmed that the charity law and Methodist law, policy and best practice requirements have been fulfilled, the legal officer dealing with the lease can request the Memorandum of Consent. The Memorandum of Consent must be signed by the Conference Officer for Legal and Constitutional Practice. Once this has been signed the lease can complete. TMCP will confirm to your solicitors when a signed Memorandum of Consent is in place and send it to your solicitors with the approved form of lease.
D2 Signing the lease
The lease must be signed by two of the Managing Trustees' who have been duly authorised to sign property documents on behalf of the relevant managing trustee body.
Please refer to the Section 333 Resolution Template Clauses if you would like guidance on the s.333 resolution that the managing trustee body would need to pass to give such authorisation, if a resolution is not already in place. The authorised Managing Trustees must also be charity trustees. If the charity is registered their names must be registered with the Charity Commission.
Please note that the lease cannot be signed on the Managing Trustees' behalf by their solicitor or a Letting Agent.
If the lease is for more than 22 years then it would also need to be sealed and signed by two Members of the Board of TMCP. Any other lease documents such as a, licence or consent to carry out works or a Rent Deposit Deed would also need to be sealed and signed by two TMCP Board Members.
Your solicitors must report to you on the terms of the lease to ensure that you are happy with them and obtain your instructions to complete.
Your solicitors must not proceed to complete the lease until TMCP has confirmed that the requirements have been met and the Memorandum of Consent is in place.
To ensure that the tenant does not become a "protected" tenant under the 1954 Act, your solicitors must serve a form of Landlord's Notice on the tenant and ensure that the tenant swears a statutory declaration before completion. TMCP will ask your solicitors to confirm that this will take place before completion. Following the statutory procedure should ensure that the tenant does not automatically enjoy the right to a new lease at the end of the term in keeping with Methodist leasing policy.
D4 Allowing the tenant into occupation
Managing Trustees must ensure that NO tenants are allowed into occupation of Model Trust property (or allowed to store items on the premises) before completion of the lease. If Managing Trustees have any doubt as to the dangers of allowing tenants into occupation before a formal lease is in place then they should ask their solicitors for advice. Managing Trustees play an important role as charity trustees and managing trustees and it is essential that charity assets are protected.
Please note that this includes ensuring that existing tenants are not simply allowed to remain in occupation after the end of the term. If the current lease term is close to expiry or has expired already and you intend to enter into a new lease, or not, please speak to your solicitor as a matter of urgency so that they can ensure that a protected tenancy does not arise pending the grant of the new lease or vacant possession being obtained.
E1 Managing the lease
Your solicitors should have advised you of your ongoing responsibilities as Landlord including insuring the property and providing any services that you are required to deliver, with costs to be recovered through a service charge.
Please bear in mind that as managing trustees, you are still responsible for carrying out quinquennial inspections that may fall due during the course of the lease. The lease should enable you to carry out the inspection, and depending on the nature of any works required and the tenant’s repair obligations under the lease, you may be able to ask the tenant to carry out and/or pay for all or a proportion of the works.
E2 Dates to remember
Managing Trustees should keep the signed lease in a safe place such as in the Church or Circuit safe with the other deeds for the property. You may also want to keep a copy close to hand so that you can refer to it. The lease should tell you how to deal with matters that may arise and remind you who is responsible for what. It is highly recommended that Managing Trustees diarise key dates such as any rent review dates, break dates (noting final dates by which any landlord break notices must be served) and the end of the term.
E3 Requests for Landlord's consent
If the tenant asks you for consent, perhaps to transfer (assign) the lease to a third party or carry out works to the property, please contact TMCP so that TMCP Legal can provide guidance on the proposals. If the request is permitted under the terms of the lease the lease will often set out a procedure to be followed. It may set out the circumstances in which Managing Trustees can refuse consent if they are minded to do so and what conditions can be imposed if they are happy to agree. Your solicitors and surveyor will also be able to provide guidance to help Managing Trustees decide how to proceed in the best interests of the charity.
Consent is usually given under a licence agreement. Please note that TMCP must be party to ancillary lease documents including consents or licences and will need to be involved in the process. TMCP Legal can assist Managing Trustees’ solicitors with the required charity law and Methodist clauses (available from TMCP direct or via TMCP’s website) so that TMCP’s approval can be given as Custodian Trustees under Standing Order 930(3) and on behalf of the Connexional Team under Standing Order 931(3).
E4 Not allowing the tenant to remain in occupation at the end of the lease term
Please make a note of the date on which the lease term ends and contact the tenant well in advance of this date to agree what will happen at the end of the fixed term. If both parties would like to enter into a new lease, Managing Trustees need to take steps to ensure that a new lease is entered into without delay. The requirements in Section B and Section C of this guidance note would need to be fulfilled in the same way that they do for a new tenant.
If Managing Trustees or the tenant does not want to enter into a new lease then arrangements will need to be made for this to happen. Please speak to your solicitor if you are unsure what to do. If the tenant is quite happy to leave then it may just be a question of agreeing for a schedule of dilapidations to be prepared and works to be carried out/ paid for and vacant possession to be obtained. If the tenant does not want to leave then please tread very carefully and ensure that you do not do anything that could be viewed as allowing the tenancy to continue on a periodic basis such as accepting rent after the end of the term. Please take urgent legal advice so that you can regularise the position and satisfy yourselves that you are acting in the best interests of the charity.
If any issues arise during the term of the lease such as your tenant is not keeping the property in repair or rent is going unpaid, please speak to your solicitor so that they can advise you on the options available to you and how to proceed in the best interests of the charity. Please keep TMCP Legal up-to-date so that the legal officer dealing with your matter can provide guidance on any charity law and Methodist considerations or requirements, particularly if litigation is involved. There are specific requirements that must be followed under Standing Orders before taking or defending any legal action, including arbitration or mediation, and TMCP Legal can guide you through the required steps.
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.
Please feel free to contact TMCP Legal if you would like any further guidance on the Methodist and charity law considerations.