Section A Introduction
Please use this Focus Note if the Surveyor recommends sale by auction as it sets out the Charity law and Methodist law, policy and best practice requirements that must be satisfied before the auction. You will note that the requirements differ to those for sales on the open market as exchange of contracts takes place on the day of the auction and the requirements must therefore be satisfied in advance of the auction. The Focus Note also includes the additional template clause required for auction contracts and transfers.
Section B Sale of Model Trust property at auction
The Managing Trustees' Surveyor will recommend what method of sale is likely to achieve the best sale price in the Qualified Surveyor's Report (QSR). This advice is sometimes revised in a QSR update.
Please note that TMCP’s approval of the sale is required before the auction date and not before the property is placed in the auction catalogue. The Managing Trustees can decide whether or not to enter the property in the auction themselves provided that this is based on the advice of their Surveyor. Given the requirements set out in Section C, Managing Trustees should ensure that the auction date they select allows sufficient time for the legal requirements to be fulfilled. Please let us know the date of the auction you are working towards as early as possible. This will enable the TMCP legal team to assess whether there is enough time to review and approve the documentation. Time scales will be dependent upon how early TMCP receive documentation from the Managing Trustees' solicitors. TMCP cannot be held responsible if a property is placed in the auction catalogue and it then has to be withdrawn because there is insufficient time for TMCP to approve matters.
Section C Charity Law and Methodist Law and Policy requirements on sales at auction
The requirements set out in this Section must be fulfilled before TMCP can approve the sale of the property at auction. Please also refer to the Sale Guidance for Solicitors for further guidance:
C1 District consent, Qualified Surveyor's Report (QSR)
The requirements for District consent and a Qualified Surveyor’s Report (QSR) apply where a property is to be sold at auction as with any other sale.
C2(a) Confirmation of reserve price
Please note that TMCP need to be advised of the reserve price as soon as this has been agreed. It is expected that the reserve price will reflect the valuation in the QSR. If for any reason it is proposed to set the reserve lower (or significantly higher) than the valuation, the Surveyor will need to provide very good reasons as to why this is the case. The property cannot be sold at the auction unless TMCP has first approved the reserve price. Please ensure that the reserve price is dealt with in good time to avoid the property having to be pulled out of an auction at the last minute with the resulting penalties.
C2(b) No discretion on the reserve price
The auctioneer must not be allowed any discretion on the reserve price. Sometimes the contract between the Managing Trustees and the auctioneer will allow the auctioneer to exercise discretion to sell the property at an agreed percentage below the reserve. This is not permitted and the Managing Trustees' solicitors will need to confirm to TMCP that they have checked the position and no discretion is allowed. The property cannot be sold for less than the reserve. This requirement should be made known to the Surveyor as it may influence his/her recommendations as to the reserve price.
C3 Approval of documents
The contract and transfer must be approved by the legal team at TMCP before the auction date. However, as these documents will form part of the legal pack prepared by the Managing Trustees' solicitors, the documents should be sent to TMCP for approval as soon as possible so that the legal pack can be made available to interested parties in good time before the auction date. The contract and transfer should include the template connected person's clauses set out in the Schedule to this Focus Note.
C4 Connected persons
As the identity of the buyer is unknown until after exchange of contracts/ the day of the auction, the usual confirmation as to whether the buyer is a connected person under s.118 of the Charities Act 2011 cannot be provided beforehand. The contract must therefore set out the procedure to be followed to fulfil this requirement post exchange of contracts and ensure that if the buyer is "connected", the contract is conditional on a Charity Commission Order being obtained. Managing Trustees' solicitors may want to use the template connected person's clauses set out in the Schedule as an example of what would be acceptable.
C5 Update to Qualified Surveyor’s Report
If the original QSR did not recommend sale by auction, please obtain confirmation from the Surveyor that he/she now recommends sale by auction as being the method of sale that is likely to achieve the best sale price and is in the best interests of the charity. You should deal with this before spending any money on auction fees. The Surveyor should also recommend:
- An appropriate auction date to work towards;
- Would it be in the charity’s interests for the property to be placed in a later auction so that it can be advertised in the catalogue perhaps more fully than time allows before the immediate auction date
- Would it be in the charity’s best interest to wait for an auction in a particular season i.e. before or after winter?
- To maximise bidding potential, does the surveyor recommend a particular auction or auctioneer that attracts buyers looking for this type of property?
Section D Before the auction day
D1 TMCP's approval of the sale
The property can only be sold at auction if TMCP has confirmed that all the Charity Law and Methodist Law and Policy requirements have been fulfilled. This includes approval of the points set out in Section C of this Focus Note. You may find the Auction Sale Checklist helpful to keep track of what is outstanding.
D2 Signing the auction contract
The sale contract must be signed by the two Managing Trustees who have been duly authorised to do so by the managing trustee body. The auction contract cannot be signed on their behalf by the auctioneer. This does not mean that Managing Trustees have to attend the auction, your solicitors should be able to arrange for you to sign the contract in advance.
Section E Auction day
Please contact TMCP on or immediately after the day of the auction to confirm whether or not the property was sold. Your solicitors must contact us as soon as possible after the auction date; (1) to confirm the completion date and (2) let us have a copy of the signed contract, their completion statement and the final form of transfer deed for sealing by the Board of TMCP. TMCP requires 10 working days from receipt of the transfer deed to arrange for it to be sealed and request the Memorandum of Consent.
Section F Template Clauses
Managing Trustees' solicitors should refer to the Sale Guidance for Solicitors and the specific clauses required for auctions set out in the Schedule to this Focus Note. The Schedule is available in word format so that solicitors can copy and paste the template clauses making any necessary amendments to take account of differences in terminology between a firm’s precedent documents and the template clauses.
F1 Contract – connected person clause
The contract must stipulate who will obtain an Order from the Charity Commission should the buyer be a “connected” person for the purposes of s.118 Charities Act 2011 and who will pay for this. The template clause at paragraph 1 of the Schedule shows the sort of provision that would be acceptable.
F2 Transfer - connected person clause
The transfer connected person clause at paragraph 2 of the Schedule should be included in the draft transfer in square brackets so that it can be included in the engrossment transfer if the buyer at auction is “connected”.
When preparing the contract and transfer, please consider the Sale guidance for Solicitors and the contents of the “Auction Sale Focus Note” and then incorporate provisions based on those set out in this Schedule, amended appropriately to reflect the details of the transaction and the style and terminology in the rest of the contract and transfer.
- Contract - Connected person clause
- No later than 3 working days after exchange the Buyer will serve notice on the Seller's Conveyancer to confirm whether or not the Buyer is a connected person (within the meaning of Section 118 of the Charities Act 2011) in relation to the Seller, or a trustee for or nominee of such a connected person (Connected Notice).
- In the event that the Buyer fails to serve a Connected Notice in accordance with clause [ ], the Seller may rescind this contract on service of notice on the Buyer and conditions [ ] and [ ] of the [Standard Conditions of Sale] shall apply.
- In the event that the Connected Notice confirms that the Buyer is such a connected person then this contract is conditional upon the Managing Trustees obtaining an order from the Charity Commission consenting to the sale of the Property to the Buyer in accordance with the terms of this contract (Order).
- If an Order is required the Buyer shall:
- pay on an indemnity basis, in addition to all other sums due under this contract, the Managing Trustees' costs in respect of obtaining the Order (Order Costs); and
- co-operate fully with the Seller and their conveyancers in relation to the Order including but not limited to providing all information and documentation required by the Charity Commission to apply for the Order.
- Completion will be ten working days after the Seller's Conveyancer serves the Order on the Buyer’s Conveyancer.
- In the event that the Managing Trustees have not served the Order on the Buyer on or before [DATE] (being 3 months from the date of the contract), or such later date as the parties may agree in writing, then either party shall be able to rescind this contract immediately on service of notice on the other party.
- If the contract is terminated in accordance with Clause [NUMBER] the Managing Trustees will refund or authorise the refund of the Deposit to the Buyer less the Order Costs.
- Transfer - Connected person clause
[The Managing Trustees certify that the Transferee is a connected person for the purposes of s.118([RELEVANT SUB-SECTION]) of the Charities Act 2011 and that as charity trustees they have obtained an order from the Charity Commission authorising this disposition.]
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 the guidance in this Focus Note please contact TMCP Legal for further assistance.