Section A - Introduction
Please read this Focus Note and share it with your solicitor if you are considering buying a new build property together with the Purchase Guidance for Managing Trustees and Purchase Guidance for Solicitors. New build properties can prove particularly attractive to Managing Trustees looking for new low maintenance Manses or ways to further Mission in the heart of new housing developments, sometimes where there is little other community and spiritual provision.
This Focus Note aims to help Managing Trustees and their solicitors to identify and deal with potential issues that can arise due to the particular way that Model Trust property is held and managed. Ultimately this should reduce the chance of delays and lost incentives.
In this Focus Note:
“Model Trusts” means the Model Trusts under Part III of Schedule 2 to the Methodist Church Act 1976.
The Purchase Guidance for Solicitors explains how the property will be held and managed. In short, the property will be charity property held on the Model Trusts by TMCP as Custodian Trustee on trust for the Managing Trustees. Usually the Managing Trustees will be members of the Circuit Meeting or local Church Council, but in rare cases the District synod or Connexional Manse Trustees. This means that whilst legal title will be held by TMCP, TMCP will have no beneficial interest in the property and will have no day to day involvement in or responsibility for the property.
This means that as Custodian Trustee, TMCP will not accept any liability under the purchase documents (the contract, transfer/ lease or any deeds of covenant required by the developer). It also means that TMCP will not undertake any obligations with regard to a Management Company. Everyday control and management lies in the hands of the Managing Trustees as managing trustees and charity trustees. It is the Managing Trustees who will accept such liability and undertake such obligations.
TMCP is obliged to act on the lawful instructions of the Managing Trustees. TMCP will therefore not approve the transaction unless all of the charity law and Methodist law, policy and best practice requirements set out in the Purchase Guidance for Managing Trustees and the Purchase Guidance for Solicitors are fulfilled. Compliance with these requirements needs to be factored into the timescales for anticipated completion.
The following issues that often arise on new build purchases stem from the points highlighted in Section B. Identifying any such issues early will help Managing Trustees to proceed with the transaction without unnecessary delay:
Standard documents and TMCP’s template clauses - Developers often want plots/ new builds to be sold on like terms and can be unwilling to adapt their standard sales documents to accommodate the required charity law and Methodist law, policy and best practice template clauses. (See Purchase Template Clauses and Template Lease to TMCP Clauses.) As explained in the Purchase Guidance for Solicitors, TMCP must be party to and approve the sales documents in its capacity as Custodian Trustee. TMCP cannot approve the documentation unless the template clauses have been incorporated.
- No liability on the Board of TMCP - As explained in Section B, TMCP as Custodian Trustee cannot accept any liability, give any covenants nor undertake any obligations in the contract or transfer deed/ lease or enter into any deeds of covenant or similar. Any obligations or other liability on the part of the buyer or transferee must fall on the Managing Trustees instead. This can be difficult for sellers/ developers to accept and amendments to the standard documents can be resisted.
However, the drafting will need to reflect the position of the Custodian Trustee and Managing Trustees. The template purchase clauses dealing with liability; Part 1, paragraph 2(b) and Part 2, paragraph 5.1 of the Purchase Template Clauses, must be inserted into the legal documents and TMCP cannot concur if they are left out. Ideally the documentation should be amended to reflect the reality of the way in which the property will be managed whilst legal title is vested in TMCP so that any positive obligations are placed on the Managing Trustees. If a separate Deed of Covenant is required the Managing Trustees should be party to this, not TMCP. Managing Trustees' Solicitors will need to explain the position to the developer/ seller’s solicitors and ensure that any liability on TMCP is excluded.
- Standard covenants and proposed use of the property – Properties on new developments are usually subject to restrictive covenants to safeguard the appearance, amenability and desirability of the development. Common covenants include not using the property for anything other than as a single private dwelling house. This can be problematic as property is unlikely to be acquired for solely residential use.
Managing Trustees need to explain to their solicitors exactly what they intend to use the property for. The most common proposed use would be as a Manse but Managing Trustees increasingly want to use new build properties purely for non-residential purposes such as a drop-in centre or a base for Mission. If Managing Trustees intend to use the property as a Manse , they should explain to their solicitors that a Manse is the name given to a home that is acquired by the Methodist Church to house a presbyter or deacon. Managing Trustees' solicitors can refer to the requirements set out in Standing Order 803 and the Conference of 2009 guidelines set out in CPD Book VII Part 2. In summary, a Manse is a base for the work of ministry as well as a home. The work of ministry would include holding meetings and conducting pastoral and other confidential interviews.
Managing Trustees' solicitors need to ensure that either any covenants are qualified to allow the proposed use, perhaps; “so long as the Property is held by the Trustees For Methodist Church Purposes”, or that specific written confirmation is obtained from the seller/ developer confirming that the proposed use will not be in breach of the covenant.
- Management Companies – Management companies will often be set up to take responsibility for the maintenance of common parts on a development and it is not uncommon for buyers to be obliged to become a member of the management company and act as Company Secretary or Director on request. In its capacity as Custodian Trustee, and given that day to day control and management responsibilities will lie in the hands of the Managing Trustees, TMCP will not become a member of or accept an appointment as director or secretary of any management company. Any such obligation will need to be removed from the purchase documentation or amended to the effect that; “whilst legal title is held by the TMCP Board”, such obligations will fall on the Managing Trustees. The Managing Trustees' solicitors will need to explain the implications of this to the Managing Trustees.
- Deadlines and loss of incentives - Deadlines are often placed on buyers of new builds for them to exchange/ complete within strict time-frames or face losing incentives. Managing Trustees need to bear in mind that TMCP cannot approve the transaction unless all of the charity law and Methodist law, policy and best practice requirements set out in the Purchase Guidance for Managing Trustees and Purchase Guidance for Solicitors are fulfilled. To facilitate satisfaction of the requirements, it is essential that the Managing Trustees' solicitors understand this and the way in which the property will be held so that they can communicate this to the developer and ensure that the documentation and the transaction in general can be approved without delay. TMCP cannot be held responsible for delays caused by Managing Trustees' solicitors and developer/ seller’s solicitors who refuse to accept the principles set out in this Focus Note.
In terms of completion, Managing Trustees' Solicitors need to bear in mind that it can take up to 10 working days from receipt of engrossments for the transfer deed or lease to be sealed by the TMCP Board. If the completion date is not fixed and is instead triggered by service of completion notices or otherwise, the notice periods will need to accommodate the practicalities of dealing with execution of documents by Managing Trustees and the custodian trustee body.
Managing Trustees' solicitors should refer to the Purchase Guidance for Solicitors for details of the charity law and Methodist law, policy and best practice requirements on purchases.
In terms of new build purchases, Managing Trustees' solicitors sometimes send TMCP the complete legal pack and ask TMCP Legal to comment on it. Managing Trustees rely on their solicitors to review the title pack and advise them as to whether there is anything contained in any documentation, or any information relating to this matter, which should cause concern to the charity. This includes anything that may affect the Managing Trustees ability to use the property for the intended purpose or affect the saleability and/or mortgageability of the property in the future.
Managing Trustees' solicitors are required to confirm that the Methodist Church is acquiring good and marketable title on all purchases (see Section B5 of the Purchase Guidance for Solicitors). On a new build purchase such confirmation will be taken to include, amongst other things, that the Managing Trustees' solicitors are satisfied that:
- the property is/will on completion be connected to and served by all mains services (including but not limited to mains water, drainage, gas, electricity and broadband)
- the property will be served by all roads accessways and footpaths which are needed to access and use the property as intended and that all such roads accessways and footpaths will be maintained at public expense at no cost to the Managing Trustees or the TMCP Board
- neither the Managing Trustees nor TMCP will have any liability under any planning agreements or other agreements that have been entered into in respect of the development including but not limited to agreements under s.106 of the Town & Country Planning Act, s.278 of the Highways Act 1980, s.38 of the Highways Act 1980, s.102, s.104 or s.185 of the Water Industry Act 1991 or otherwise.
- there is nothing in the title documents, planning agreements or otherwise that would prevent the Managing Trustees from using the property for their proposed purpose and that if specific planning permission or confirmation from the seller/ developer is required that this is in place.
- that the contract contains adequate provisions to ensure that the appropriate warranty documentation will be produced and if the property has not yet been built, that the property is constructed to the required standard.
Managing Trustees' solicitors will be asked to specifically confirm:
- Warranty - what form of warranty will be provided by the seller/ developer on completion and whether their advice is that the warranty is sufficient to protect the best interests of the charity. It is expected that a standard NHBC form of warranty or similar backed by appropriate insurance will be provided (for residential properties).
- Obligations on Managing Trustees – that they have explained the obligations that will be placed on the Managing Trustees under the purchase contract, transfer/lease and any other documentation and that the Managing Trustees understand and are prepared to accept such obligations.
- Use - that the property can be used for the intended purpose whether as a Manse or otherwise.
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.
If you have any queries in relation to purchases please contact TMCP Legal for further guidance.