Finding your way around the Sale Guidance for Managing Trustees

  • Section A is a general introduction to sales and Methodist best practice
    Sections B to F guide Managing Trustees through the various stages of a typical sale
  • Section B sets out the first steps
  • Section C provides guidance on finding a buyer and instructing a solicitor
  • Section D takes Managing Trustees through the practicalities of fulfilling the requirements and preparing for exchange of contracts
  • Section E - exchange of contracts
  • Section F - completion
  • Section G discusses issues to consider following completion

Section A Sales - getting started

A1 Introduction

As Managing Trustees you may decide that a property is surplus to requirements or that you want to sell a property for some other reason i.e. to fund a new, more suitable, manse or worship space.

TMCP Legal has prepared these guidance notes to help you to understand your responsibilities both as Managing Trustees and as charity trustees when selling Model Trust property and to explain the steps that should be taken. Your legal representatives should be able to assist you with any technical matters but please feel free to contact TMCP Legal if you would like any further guidance on the Methodist and Charity law considerations. TMCP’s legal officers endeavour to work with you and your professional representatives so that the sale can proceed to conclusion as smoothly as possible.

A2 The role of the Trustees for Methodist Church Purposes (TMCP)

So why does TMCP need to be involved in the sales process? The legal owner of nearly all Methodist land and property is TMCP. TMCP holds legal title in its capacity as Custodian Trustee on trust for the local Managing Trustees by virtue of the Methodist Church Act 1976. This means that TMCP needs to be party to the sales documents. Under Standing Order 930(3) TMCP is also 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 sale complies with Charity law and Methodist law, policy and best practice so that we can approve the sale as Custodian Trustee.

A3 Charity Law and Methodist Law and Policy Requirements on Sales of Methodist Model Trust Property

The charity law and Methodist law, policy and best practice requirements that must be fulfilled on sales of Methodist Model Trust property are set out in Section B and Section D. The requirements are also summarised in the Sale Checklist.  Please note that your solicitors must not proceed to exchange of contracts until TMCP has confirmed approval for them to do so.  TMCP cannot do this until the steps set out in Sections B1 and B2 have been taken, the requirements in Section D fulfilled and evidence of this has been sent to TMCP.

A4 Further information

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

Section B First Steps – You want to sell a property, what do you do first?

B1 Step 1 - Logging the sale as a project on the Methodist Property Consents Management System (Consents Website)

The first step is for the Managing Trustees to log a project on the Consents Website. The appropriate consent giving bodies (usually the Church Council, Circuit Meeting and District Trustees) will indicate their consent to the principle of the sale via the Consents Website. Final Consent must be in place before TMCP can approve exchange.

Please note:

  • It is the responsibility of the 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 Local and Circuit property, the required consent 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).
  • The sale of a burial ground must be logged as follows; the former burial ground must be sold by way of a long lease and logged as a sale project. If the former burial ground is sold together with other land or buildings such area should be sold freehold and logged as a separate sale project (please refer to the Burial Ground Sale Focus Note).

Once the project(s) has been logged, please ensure that you use (and ask your Solicitors to use) the project ID number when you contact TMCP.

B2 – Step 2 - Qualified Surveyor’s Report (QSR)

The Charities Act 2011 (2011 Act) requires Managing Trustees, as charity trustees, to obtain a QSR before disposing of charity property. The Managing Trustees must obtain the QSR before proceeding any further with the proposed sale so that they can ensure that they are acting in the best interests of the charity and comply with Methodist best practice.

The QSR must take a specific form in accordance with the Charities (Qualified Surveyors' Reports) Regulations 1992 and be written by a suitably experienced and qualified surveyor as prescribed by the 2011 Act. (Please refer to the QSR Focus Note.)

The QSR will provide helpful advice relating to the proposed sale including the current value of the property, advice as to the manner of selling the property, whether any alterations should be made to the property prior to sale and other options available to the Managing Trustees such as obtaining planning permission which may increase the value of the property. Once the QSR has been prepared it needs to be sent to TMCP for approval.

Only once approval has been given can the property be marketed in accordance with the professional advice contained in the QSR or such alternative action as your surveyor may recommend be taken.

Please let your surveyor have a copy of the Burial Ground Guidance and Burial Ground Sale Focus Note if the property includes a disused burial ground as the requirements for sales of burial grounds may impact on the valuation.

Please note that the QSR is confidential to the Managing Trustees and must not be disclosed to a potential buyer.

B3 Replacement projects
B3.1 Replacement project Process

If Managing Trustees would like one project e.g. a purchase to be considered as a replacement for another project e.g. a sale, the procedure to be followed is set out in the Replacement Project Focus Note.

Please note that it is the Conference Office who actually decide whether a project can be designated as a “replacement” under Standing Order 931(1)(ix). This is not a decision that can be taken by TMCP and TMCP legal is not involved in the process as it is now handled entirely through the Consents Website. If Managing Trustees have any questions about replacement projects please direct these to the Conference Office or the Consents Team if the issue relates to the Consents Website. If you are relying on a CPF Levy refund in the funding of a project then please resolve any issues as early in proceedings as possible so that your funding requirements are clear and you have time to plan accordingly.

B3.2 Replacement Project Criteria

Guidance notes have been produced by the Connexional Grants Committee. These set out the criteria used by the Conference Office in deciding whether to designate a project as a replacement under Standing Order 931(1)(ix) and may be of assistance to you.

B4 Authorised Managing Trustees

Documents relating to the sale such as the sale contract and transfer deed will need to be signed by two authorised Managing Trustees. But what are “authorised” Managing Trustees?

Two or more Managing Trustees can be “authorised” to sign property documents relating to a particular transaction (or to property transactions in general) by a resolution passed under s.333 of the 2011 Act by the appropriate Managing Trustee body, usually the Church Council or Circuit Meeting. If the Managing Trustee body has authorised four Managing Trustees to sign property documentation generally then any two of these people could sign. If the charity is a registered charity, please ensure that the authorised Managing Trustees are also registered as charity trustees and listed on the Charity Commission website.

Managing Trustees can assist the smooth running of a sale (and avoid having to pass a last minute s.333 resolution) by ensuring that an appropriate resolution is in place when the decision is made to sell, that is, if a general resolution has not been passed already. Please also check that at least two of the duly authorised Managing Trustees will be available to sign documentation when required, especially during holiday periods. Authorising more than two Managing Trustees can be useful to ensure availability. (Please refer to the Section 333 Resolution Template Clauses for an example of the resolution that can be passed under s.333 of the 2011 Act).

B5 Restrictive Covenants  

Church properties can be subject to restrictive covenants restricting use to worship purposes or otherwise. Managing Trustees are often concerned when they come to sell such properties believing that the only option is to contact the person with the benefit of the covenant and do whatever they request to remove the restriction to facilitate the sale.

The Managing Trustees primary responsibility is to act in the best interests of the charity, not in the best interests of the person with the benefit of the covenant. Please bear in mind that a restrictive covenant is not necessarily enforceable at law. Managing Trustees should take professional advice without delay as to whether the covenant is still enforceable and, if it is, as to what steps to take next i.e. can insurance be taken out to cover the risk of possible enforcement action being taken?

It is important not to make any contact with the person with the benefit of the covenant unless your solicitor or surveyor has advised you to do so. Contact is likely to make the risk uninsurable and Managing Trustees should avoid jeopardising what can be a timely and economic option.

Negotiating a formal deed of release of covenant with the beneficiary can prove exceedingly costly. It cannot be in the best interests of the charity to go through this costly and time consuming process if indemnity insurance is available or your solicitors advise that the covenant is unenforceable.

If your solicitors advise you to negotiate a formal release then please follow their advice carefully so that you can start negotiations in the strongest possible position and protect the charity that you are working so hard to support. Please do notify TMCP if the property to be sold is subject to restrictive covenants in early course so that we can assist.

Section C Marketing, finding a buyer and instructing a solicitor

C1 Marketing

The Managing Trustees will need to market the property in accordance with the surveyor’s recommendations in the QSR.

C2 Auction

If the Managing Trustees surveyor recommends that the property is sold via auction, please refer to the Auction Sale Focus Note and Auction Sale Checklist and ensure that TMCP is provided with everything set out in Section C of the Auction Focus Note as soon as possible.

C3 Accepting an Offer

Managing Trustees will need to consider offers carefully and take advice from their surveyor to help them decide which offer represents “best price”. In some circumstances your surveyor may advise that a lower offer is “best price” due to there being no conditions attached to it, the conditions being less risky than another offer or the proposed buyer having the means to move quicker for example.

Please note that to secure “best price” and following Charity Commission guidance, the property must be kept on the market until exchange of contracts i.e. until the buyer is contractually bound to complete the sale. The only exceptions are where the surveyor has advised the Managing Trustees in the QSR not to market the property, the property has been advertised, on the surveyor’s advice, with a cut-off date for receipt of offers (such as sealed bids or tender) or the surveyor advises, giving specific reasons why, that the property must be taken off the market to secure the sale.

The Managing Trustees’ agent therefore needs to make the Managing Trustees’ position clear to potential buyers. Except in the circumstances above, offers must be accepted subject to contract and to no better offer being received before exchange. The Managing Trustees’ solicitor will need to explain the position to the buyer’s solicitor. Managing Trustees may need to “gazump” a buyer as prudent charity trustees to ensure best price is obtained.

C4 Instructing a solicitor

Once a buyer has been found the Managing Trustees will need to instruct a solicitor to deal with the legal aspects of the sale. As Custodian Trustees, TMCP is responsible for overseeing the transaction and to ensure the sale is conducted in accordance with charity/trust law and Methodist law, policy and best practice. Whilst we provide guidance to help and assist Managing Trustees and their solicitors, TMCP Legal cannot act as solicitors for the Managing Trustees.

Please provide your solicitors with a copy of the Sale Guidance for Solicitors  so that they are aware of the Charity law and Methodist law, policy and best practice requirements. Pease also ensure that your solicitor has a copy of the approved QSR.

If you would like guidance on choosing a solicitor or agreeing fees please refer to the Instructing a Legal Adviser Focus Note.

Section D Next steps - Preparing for exchange

Once the Managing Trustees have found a buyer and are satisfied that they have obtained best price for the property in accordance with the advice obtained in the QSR, the steps set out in Sections B1 and B2 have been taken and they have instructed a solicitor, they need to ensure that all the outstanding requirements set out in the Sale Checklist are fulfilled.

Please ask your solicitors to contact us as soon as possible so we can work through the outstanding charity law and Methodist law, policy and best practice requirements with them in readiness for exchange of contracts.

D1 Final Consent  

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 contracts can be exchanged. (See Section B1)

D2 QSR

The Managing Trustees should already have obtained TMCP’s approval to the QSR. If they have not done so already they should ensure that a copy is sent to TMCP without delay. (See Section B2)

D3 Best Price Certificate

Once a buyer has been found, please send TMCP a copy of a letter signed by the qualified surveyor to confirm that (1) the property has been adequately marketed and (2) that the agreed sale price is the best price reasonably obtainable. TMCP will need to approve this before we can approve exchange of contracts.

D4 Connected Persons

Your solicitors will be asked to confirm whether the buyer is connected to the charity within the meaning of s.118 of the 2011 Act.

If the seller is NOT a connected person TMCP will ask your solicitors to arrange for the buyer to sign a correctly completed Connected Person Certificate 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 the Managing Trustees are aware the buyer is not connected.

If the buyer is a connected person the Managing Trustees will need to apply to the Charity Commission for an Order authorising the sale. The application is made online: https://www.gov.uk/guidance/sell-or-lease-property-to-someone-connected-to-your-charity

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 sale can be given.

D5 Approval of contract, transfer and/or lease

Your solicitors must obtain TMCP’s approval to the sales contract, transfer and/or lease before TMCP can approve exchange of contracts.

To obtain approval the Managing Trustees solicitors will need to include all the template Methodist and 2011 Act clauses. It is important that they contact TMCP to ensure that they have up-to-date Sale Template Clauses  and the Sale Guidance for Solicitors. TMCP will help your solicitors to put the documents in an approved form.

Section E Exchange of contracts

E1 Approval to exchange contracts

TMCP cannot approve exchange until we are satisfied that all the requirements set out in the Sale Checklist and detailed in Sections B and D have been fulfilled. Only then can TMCP approve the substance of the transaction as Custodian Trustee under Standing Order 930(3). During the sale process TMCP will therefore assist you and your advisers to ensure that the sale complies with Charity law and Methodist law, policy and best practice requirements. This should also help you to ensure that your duties as managing trustees and charity trustees have been fulfilled. This should protect you as Managing Trustees should any questions be raised at a later date as to why certain decisions were made and protect the charity to ensure that the transaction is in its best interests.

Your solicitors must not proceed to exchange of contracts until they have TMCP’s approval to do so.

E2 Time period between exchange and completion

When agreeing a completion date with the buyer please bear in mind that TMCP generally require at least 10 working days between exchange and completion. This is to allow sufficient time to seal the Transfer Deed and to procure the necessary Memorandum of Consent to the sale from the Methodist Council under Model Trust 26. Availability of Board signatories at short notice cannot be guaranteed.

If the buyer requires completion within a shorter time, please ensure that TMCP are made aware as soon as possible so that the legal officer dealing with your project can see whether this is at all feasible.

Section F Completion

F1 Sale proceeds

Sale proceeds, less permitted deductions only (see Section F2) must be sent to TMCP as Custodian Trustee in accordance with Standing Order 915(2)(i). The net sale proceeds will be applied as discussed in Section F3, any Connexional Priority Fund Levy taken as discussed in Section F4 and then placed in the appropriate trust fund as discussed in Sections F5 and F6. Please note that the trust fund the monies are placed in depends not on who the Managing Trustees of the property are but the type of property that has been sold.

F2 Permitted Deductions

Please note that the only deductions that should be made from the sale proceeds before the sale proceeds are transferred to TMCP by your solicitors are those deductions permitted under Methodist Standing Order 916(1)(i). In short, permitted deductions include legal and surveyor’s fees and any other costs incurred directly as a result of the sale of the property. Insurance and utility costs i.e. ongoing running costs for a property (even if the property is not being used pending completion of the sale) cannot be deducted from the sale proceeds before they are sent to TMCP and the Connexional Priority Fund levy calculated. You may find the separate guidance from the Connexional Grants Committee on “Replacement Projects and Deductions” helpful.

TMCP Legal asks your solicitors to send TMCP a copy of their draft completion statement so that the legal officer dealing with your matter can check any proposed deductions and approve this before returning the sealed transfer and Memorandum of Consent to them. It would help to speed up this process if you can provide your solicitors with details of any expenses that you want to deduct from the sale proceeds before the balance is sent to TMCP and the CPF levy is calculated as soon as possible. This will avoid discussions as to what can and cannot be included delaying completion.

F3 Application of sale proceeds

When TMCP receives the sale proceeds, less permitted deductions, the sale proceeds will be apportioned in accordance with Standing Orders; (1) any returnable grants will be repaid on the sale of a whole site (but not Manse sales), (2) any levy due will be paid to the Connexional Priority Fund (please see Section F4) and (3) the balance will be placed in the appropriate Model Trust fund. (see Sections F5 and F6).

F4 Connexional Priority Fund levy (CPF levy)

Under Standing Order 970, the CPF levy shall be charged on all capital money arising from a sale. The amount of levy chargeable is 20% on the first £100,000 and 40% on any excess over £100,000 (Standing Order 972).

However, under Standing Order 970(2), the CPF levy may not be applicable to the sale in the following circumstances:

  • if the property is on the City Centre list (Standing Order 970(2)(ii));
  • where land has been held as an investment – note that to be investment property, the property must never have been used for Methodist Trust Purposes (Standing Order 970(2)(vi) and Standing Order 908);
  • if the property has been sold due to compulsory purchase, usually by the Local Authority (Standing Order 970(2)(v));
  • if the property was received within the last five years by way of devise or bequest and is no longer required for Methodist Trust purposes (Standing Order 970(2)(vii));
  • if the sale is linked to a replacement project under Standing Order 973 - in this case the CPF levy would be taken on the sale and held pending a payment request via the Consents Website for the “levy refund” on the replacement project itself. Please see Section B3.

If the Managing Trustees think one of the above scenarios applies to the sale, please inform TMCP as soon as possible so that the legal officer dealing with the sale is aware of the position.

F5 Destination of sale proceeds – local property

The balance of the sale proceeds arising from the sale of local property, following the payments set out in Section F3, will usually be placed in the Circuit Model Trust Fund under Standing Order 945(1). It is then a decision for the Circuit Meeting as to what happens to those sales proceeds.

There are limited cases where sales proceeds are instead invested in a model trust fund for the local church. These circumstances are set out in Standing Order 945(2);

  1. Standing Order 945(2)(i) land is held as investment;
  2. Standing Order 945(2)(ii) land received in the last five years by way of a bequest or devise in the circumstances set out in that Standing Order; or
  3. Standing Order 945(2)(iii) local Church caretaker’s accommodation.

Please advise TMCP Legal as soon as possible if you believe that the sale proceeds will be local funds. Sometimes further information is required to clarify the situation. Dealing with this in good time should ensure that the legal officer dealing with your matter has sufficient information on completion to confirm to TMCP Finance that the monies are local monies and available for your use.

There are also limited circumstances where sale proceeds arising from the sale of local and circuit properties are sent to the District. If a church, circuit or project is included on the official list kept under Standing Order 440(1) (the City Centre List) capital monies arising will be sent to the District and applied for district purposes.

F6 Destination of sale proceeds – circuit, district and Connexional property

The net sale proceeds (following the payments set out in Section F3), arising from the sale of circuit, district and Connexional property, will usually be placed as follows:

  • Circuit property – circuit model trust fund (unless the project is included on the City Centre List when the sale proceeds will be sent to the District)
  • District property – a district model trust fund for the relevant purpose
  • Connexional property – appropriate Connexional trust  

Section G Post completion

G1 Managing trusteeship

Once a property is sold, depending on the terms of the transfer, there may still be ongoing issues that need to be taken care of and consideration needs to be given as to with whom managing trusteeship will lie going forwards. Usually, where a chapel is sold, this will be the Circuit Meeting but a Church Council could delegate managing trusteeship to another Church Council or the congregation may continue to meet elsewhere and retain managing trusteeship themselves.

It would be really helpful if Managing Trustees could consider the position and ensure that the Circuit has a record of that decision (this should be minuted) so that any ongoing issues can be dealt with by the appropriate body. Such issues may include correspondence from the buyer or a future buyer asking for covenants to be varied or dealing with overage provisions.

G2 Trusts

On the closure of a church, whether that is the closure of the society itself or just the building, consideration needs to be given as to what managing trustee body will have responsibility for any trusts that are in existence for the society in question going forwards. In the case of closure of a society, this issue requires consideration before the Church Council cease to meet as appropriate resolutions must be passed by the Church Council in question rather than any alternative body to which managing trusteeship is delegated. The options available will depend upon the nature of the particular trust(s) so please contact TMCP for specific guidance on any existing trusts as soon as possible.

Disclaimer

 

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 charity law and Methodist law, policy and best practice considerations.