Section A - Introduction
In these Frequently Asked Questions;
“QSR” means a Qualified Surveyor’s Report prepared under s.119 of the Charities Act 2011.
Section B - Frequently Asked Questions
A1 As charity trustees, the Managing Trustees must act in the best interests of the charity and obtain best price. The key question here is whether the offer at £10,000 below the valuation is "best price" in all the circumstances. Is the property only worth the price now being offered? Are the Managing Trustees confident that they have followed the surveyor's advice in the QSR regarding the method of sale and advertising? Does the estate agent think it is worth holding out for a better offer? To confirm the position the Managing Trustees should ask their surveyor whether he/she would be prepared to provide a "best price" certificate confirming that best price has been obtained and the property has been adequately marketed (see Sale Guidance for Managing Trustees Section E3). The surveyor also needs to explain why there is a discrepancy between the valuation and sale price. Has the market changed since the QSR was prepared? Was the valuation overly optimistic? Is there something in particular that is deterring potential buyers and if so would it be in the best interests of the charity to sell at the price now being offered or to address the issue?
If the surveyor has not been involved in the marketing process they will need to speak to the Managing Trustees’ agent to satisfy themselves as to the marketing position.
As charity trustees, the Managing Trustees will also be expected to keep the property on the market until exchange. This ensures the property will continue to be exposed to any higher offers that may be made and best price can be achieved. Any such offers would need to be duly considered by the Managing Trustees and the surveyor’s advice obtained. The Managing Trustees’ solicitor should make the position clear to the proposed buyer and explain why the Managing Trustees are obliged to act in this way.
TMCP is obliged to act on the Managing Trustees' lawful instructions. If the Managing Trustees want to accept the offer, the property stays on the market and a best price certificate is available, TMCP would not raise any objections to the proposed sale. It goes without saying that all the other requirements set out in the Sale Guidance for Managing Trustees Section B must be fulfilled before TMCP could approve exchange of contracts.
A2 This may be possible but it is not a decision that is made by or involves TMCP. Please refer to the brief note in the Sale Guidance for Managing Trustees Section C3 and the Replacement Project Focus Note for an explanation of the process to be followed if you would like the Conference Office to consider one project as a replacement for another. The guidance note produced by the Connexional Grants Committee sets out the criteria that can be taken into consideration by the Conference Office when deciding whether or not to classify indirect replacements as replacement projects.
If the sale is by the Church Council, the sale monies would be paid into the Circuit Model Trust Fund under Standing Order 945(1) – please refer to the Sale Guidance for Managing Trustees Section G5. Therefore, the funds would only be available for the renovation project if the Circuit agreed to ringfence the sale proceeds for use by the Managing Trustees even if the renovation project was designated a replacement. The Managing Trustees should discuss the position with the Circuit before deciding how best to proceed.
Q3 A local developer has offered to buy our chapel and will carry out the renovation of the neighbouring Sunday school to create a new "fit for purpose" worship and community space. Can we agree to this? No money would change hands although we may have to pay some additional costs for the works if they exceed the provisional budget.
A3 If the Managing Trustees have decided to sell, they first need to obtain a QSR (Sale Guidance for Managing Trustees Section C2). The Managing Trustees will need to know how much the property is worth and whether the property needs to be advertised on the open market before entering into any negotiations with potential developers. (As discussed in FAQ 1, best price must be obtained and unless the buyer is prepared to pay what the property is worth and what the surveyor is prepared to confirm is “best price” then the transaction cannot proceed under charity law or Methodist law and policy.)
If the buyer is prepared to pay market value and the Managing Trustees have not received any higher offers (i.e. following a period of exposure on the open market or otherwise as recommended by the surveyor), then the Managing Trustees would need to decide how to structure the sale based on the advice of their solicitors.
You need to ask your solicitors to advise you how the sale can be structured so as to protect the best interests of the charity. Your solicitors need to bear in mind that the property is charity property and that the Managing Trustees as charity trustees cannot take the same commercial risks as their commercial clients may be prepared to take.
By way of example, such re-development projects have in the past been structured on the basis that the sale of the chapel is conditional on planning and completion of the Sunday school renovation/ redevelopment project to a specified standard whereupon the chapel is transferred to the developer. Managing Trustees' solicitors have also structured such projects so that the sale is conditional on planning only whereupon the chapel would be transferred to the developer for full market value subject to enforceable obligations on the developer to complete the Sunday school renovation/ redevelopment project. The consideration paid by the developer (or a proportion of it equal to the build costs) is then released back to the developer in staged payments as the redevelopment of the Sunday school progresses.
Your solicitors may be able to suggest other ways of structuring the transaction so that the interests of the charity are protected, perhaps securing the developer’s obligations relating to the Sunday School by way of a legal charge or the use of escrow accounts. Consideration needs to be given to what would happen if the developer were unable to complete the works to the Sunday School for any reason, perhaps insolvency, Would the Managing Trustees be able to step-in? Would they have the funds to do so? Consideration also needs to be given to ensuring that the Managing Trustees can pay for any extras.
Please note that if the sale is by the Church Council, the sale monies would be payable into the Circuit Model Trust Fund (whether or not the works project was a designated replacement project). Please refer to FAQ 2. The Managing Trustees could only rely on the sales proceeds to discharge their payment obligations under the development agreement and/or building contract if the Circuit agreed that the “sale proceeds” could be used for the works project. Otherwise they must be paid into the Circuit Model Trust Fund and the building works would have to be paid out of alternative local funds.
As regards the works being carried out by the developer, as prudent charity trustees, the Managing Trustees will need to ensure that any contract entered into with the developer (usually a JCT) is in the best interests of the charity and on the best terms. To do this the Managing Trustees will need to take the advice of their own surveyor and solicitor. The cost of the works should be negotiated keenly to ensure that the charity gets a good deal. It is best practice for quotes to be obtained from at least three alternative developers and then compared to ensure that the Managing Trustees are not over-paying for the works.
Before TMCP can approve a project it must be satisfied that the terms of the transaction are the best obtainable for the Church in accordance with the professional advice that the Managing Trustees have obtained. You will need to let TMCP have a copy of the professional advice obtained in relation to the works so that TMCP can ensure that this deals with the pertinent issues and is reflected in the documentation. If you are contemplating such a project please do contact TMCP as soon as possible so that we can provide detailed guidance in relation to sale and the redevelopment.
Q4 Do we have to impose the Methodist restrictive covenants when we sell Model Trust property?
A4 It is not a Methodist requirement for restrictive covenants relating to alcohol, betting & gambling etc to be imposed on the sale of Model Trust property. This is a local decision for the Managing Trustees.
You may consider that this is desirable if you are selling a place (or former place) of worship and retaining adjacent property. In this case the Managing Trustees may want to ensure that the property being sold will not be used for purposes that are contrary to Methodist principles or that the congregation would find unpalatable.
If the Managing Trustees do want to impose such covenants please ask your solicitor whether the covenants can be enforced from a legal perspective. If you are advised to proceed then please notify us as soon as possible with an explanation as to why you want to impose the covenants as this will help us to obtain Connexional consent as required under Standing Order 943(3). This is an additional consent that must be in place before TMCP can approve exchange.
Q5 The Circuit has incurred a lot of money insuring the property since the decision to close the church some years ago and now the buyer has requested that we pay for replacement window panes following damage whilst the property has been empty by vandals. Can these costs be deducted from the sales proceeds before the CPF levy is calculated?
A5 Please note that insurance costs and works recommended by the Managing Trustees' surveyor are treated differently for the purposes of calculating the CPF levy;
- Insurance costs are not permitted deductions under Standing Order 916(1)(i), please see Sale Guidance for Managing Trustees Section G2 and the guidance on permitted deductions in the note produced by the Connexional Grants Committee.
- Regarding the works required due to vandalism, such costs can only be deducted from the sale proceeds if your surveyor recommends that the Managing Trustees should pay for such works. If the surveyor has recommended this please send TMCP a copy of this advice so that we can ask TMCP Finance to deduct such expenses before the CPF levy calculation.
Q6 The property is subject to a restrictive covenant limiting use to worship only. Our solicitor says that we can obtain indemnity insurance to protect the buyer who intends to use the property for residential purposes but some members of the Church Council think that we have a moral duty to contact the person with the benefit of this covenant first. What should we do?
A6 As charity trustees, the Managing Trustees must act in the best interests of the charity. Taking professional advice from your solicitors and acting on that advice is a good way of satisfying yourselves that you are meeting your statutory duties as charity trustees and will not find yourselves acting in breach of trust. If your professional adviser has said that indemnity insurance is available, it is highly recommended that the Managing Trustees act on such professional advice. Contacting the beneficiary will mean that indemnity insurance is no longer an option and is unlikely to be in the best interests of the charity. It can feel at times that charity trustees legal obligations are at odds with Managing Trustees sense of moral duty. As difficult as this may be, as charity trustees, Managing Trustees must comply with their legal obligations to ensure they are acting in the best interests of their own charity. Please refer to Sale Guidance for Managing Trustees Section C5 and contact TMCP if you have any queries.
Q7 We have been working very closely with another Christian church over the past few years and as our numbers diminish we feel that they are better placed to grow Mission in our area. This will allow the Circuit to concentrate resources on other Methodist societies in our Circuit. We had an informal valuation a few months ago and although we have not shared this with the other church, there is no way that they would be able to raise the sort of money that our surveyor suggested the property would be worth on the open market due to its development potential. Can we sell to the other church for less than market value to ensure that our work continues and the building isn’t just turned into housing?
A7 Under Model Trust 16(b) Managing Trustees are under a duty to obtain best price on sales of Model Trust property. However, you may be aware that a sale at an under value to another denomination for Christian worship, is possible, albeit in exceptional cases only, under Model Trust 20. Please note that such sales are only permitted in very limited circumstances and are subject to strict conditions.
The very limited circumstances in which the policy set down under Model Trust 20 can permit sales of Methodist property at an under value are:-
- Sale to another Christian denomination where Methodist worship can no longer continue
- For use as a Youth Centre or to permit activities for children and young people but any sale must be fulfilling the mission purposes of the Church and continue to involve some measure of Christian involvement, preferably Methodist.
- Use as a school or other educational establishment.
- Sale to a Housing Association where the Housing Association meets the criteria under Standing Order 935.
There have been very few transactions under Model Trust 20 as the permitted disposals are so limited and each transaction is considered on its own merits by the Methodist Council.
If the Managing Trustees consider the proposed sale meets any of the grounds under the policy (such as ground 1 in this case), there is a specific procedure that needs to be followed in order to ask the Methodist Council to consider whether a disposition can be permitted under Model Trust 20. TMCP will help you with this. The process to be followed is:
- You would need to provide the QSR setting out the market value and provide confirmation of the (under value) offer on the table.
- You would need to provide a detailed paper to put before the Methodist Council outlining why the property should be sold for less than market value, stating which ground under the policy applies (see above) and explaining what Methodist purpose would be furthered.
- You would also need the Circuit and District to confirm their support to the application in writing. This written support/ consent is separate and in addition to the consent that is given to the principle of a transaction via the consents system.
- Once all the information is collated, TMCP Legal will help the Managing Trustees to submit the paperwork to the Methodist Council. The Methodist Council would consider the matter on the facts presented to it and confirm whether or not it was willing to give its consent to the sale of the property at an under value. The Methodist Council is unable to consider an application without all the information before it.
- A sale under Model Trust 20 would include reverter provisions meaning that if the buyer sold the property in the future, the Methodist Church would be paid the difference between actual market value and the price paid. Your solicitors would be able to explain this to you further down the line.
You will note that very specific information must be provided before the Methodist Council can consider an application. Even if a particular transaction falls under one of the specified circumstances (summarised above), this does not mean that the Methodist Council will give permission. The Methodist Council considers applications on a case by case basis. Therefore, whilst Model Trust 20 is a possibility, there can be no certainty until a decision is actually made. TMCP will however help to facilitate the process and assist the Managing Trustees to put forward their case as to why permission should be given.
Please also bear in mind, as you will no doubt have done already, that were the property to be sold for full market value, this would enable the Managing Trustees to maximise funds for work to further the missional opportunities that they have identified for the Circuit.
Q8 One of the churches in the Circuit is about to close. We are considering whether the building can be used by the Circuit for Mission purposes or whether it should be sold. If we do decide to sell there is a possibility that the local Parish Church which has no hall and with whom we have been working closely would be interested. Would such a sale have to be on the open market and for full market value?
A8 If the Managing Trustees decide to sell then please arrange for a QSR to be prepared and send to TMCP for approval. Please refer to Sale Guidance for Managing Trustees Section C2. The surveyor will recommend the best method of advertising the property for sale as part of his or her advice in the QSR. The Managing Trustees would be expected to follow such advice. Due to the statutory requirement that “best price” is obtained on sale, it is likely that the sale would be on the open market as opposed to a private sale to the parish church but the surveyor would confirm the position.
Under the Charities Act 2011 and the Model Trust 16(b), all model trust property must be sold for no less than market value, except in exceptional circumstances under Model Trust 20. Sale to another denomination for use as a church hall would not come under Model Trust 20. Therefore the sale would need to be at market value and a best price certificate would be required as usual (see Managing Trustees Sale Guidance Section E3).
If the Managing Trustees decide that the building should be sold rather than retained and used for Mission purposes, your surveyor is best placed to set out the financial implications of disposing of or retaining the building and providing the Managing Trustees with advice as to market value and method of sale. A below market value sale to the Parish Church would not be permitted under charity law and/or Methodist law, policy and best practice.
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.