Section A Introduction
You have received instructions to act in relation to the sale of charity property held on the Model Trusts of the Methodist Church (Model Trusts). Whilst you have been instructed by the managing trustees (Managing Trustees) of such property (Property), the Trustees for Methodist Church Purposes (TMCP) hold legal title to the Property as Custodian Trustees. Please read these guidance notes carefully as they contain important information about the charity law and Methodist law, policy and best practice requirements that must be fulfilled and the procedures that must be followed when acting for Managing Trustees. Your clients are relying on you to ensure that their transactions are managed in a way that has due regard for these issues so that the matter can proceed to conclusion as smoothly as possible. Please also bear in mind that your clients are charity trustees meaning that they have to comply with higher fiduciary duties in dealing with the Property than you may be used to with your commercial clients.
As part of the duties placed on your clients as charity trustees, please note the general principle that the Property should be left on the market until exchange of contracts in order to obtain best price. Please explain the Managing Trustees’ position to the buyer’s solicitors. The selling agent should have ensured that the offer was accepted subject to contract and any higher offers being made. The only exceptions are where the surveyor advised no marketing in the QSR, marketing subject to a cut-off date for offers received or has otherwise confirmed, giving specific reasons why, the Property should now be taken off the market.
A1 Brief description of roles
TMCP is a body corporate, established under the Methodist Church Act 1939 and are Custodian Trustees in whom legal title to the Property is vested. TMCP has no beneficial interest in the Property. TMCP holds the legal title in trust for the Managing Trustees. TMCP is obliged to concur with and act upon the lawful instructions of the Managing Trustees to enable them to administer the charity effectively. It is the Managing Trustees who have responsibility for the day to day control and management of the Property. The Managing Trustees are the charity trustees.
Please ask your client, the Managing Trustees, to confirm the name of the relevant managing trustee body to which they belong and whether this body is itself a registered charity. Usually the managing trustee body will be the local Church Council or Circuit Meeting. You may however be instructed by the District Trustees, Connexional Manse Trustees or the Methodist Council. Clarification of this point will enable you to draft the contract and transfer deed correctly.
The role of TMCP Legal in relation to the proposed sale is to ensure that the Charities Act 2011 (2011 Act) and Methodist law, policy and best practice requirements and procedures relating to the sale of property held on the Model Trusts have been met, that the transaction TMCP is being asked to enter into is otherwise lawful, not in breach of trust and complies with Methodist procedures and best practice. By looking at the transaction as a whole we can help you to ensure that it is in the best interests of the Managing Trustees. If you would like any further guidance to help you achieve this please do not hesitate to contact TMCP.
A2 Charity property
As the Property is charity property and the charity is a non-exempt charity, sections 117 to 123 of the 2011 Act will apply to the sale.
To assist you we have set out the charity law and Methodist law, policy and best practice requirements in Section B and provided template 2011 Act and Methodist law, policy and best practice compliant clauses in the Sale Template Clauses that MUST be included in the contract and transfer deed. Please ensure that the requirements set out in Sections B1 to B5 (and B6-B7 if appropriate) have been fulfilled before asking for TMCP’s approval to proceed to exchange of contracts.
Contracts must not be exchanged until TMCP has confirmed that all the charity law and Methodist law, policy and best practice requirements for the transaction have been satisfied. You should not proceed to exchange until we confirm TMCP’s approval to proceed.
The documents listed at B2, B3 and B5 must be submitted to TMCP for approval.
Please ensure that the following steps are fulfilled and forward evidence of this to TMCP before asking for approval to proceed to exchange of contracts. Please do not expect TMCP Legal to approve exchange unless these points have been satisfied.
B1 District consent
The sale should be logged as a “project” on the Methodist property consents management system (Consents Website). This is the responsibility of your clients, the Managing Trustees. Once the project is logged, the necessary Methodist consents will be entered. Please note that the consents entered here are quite distinct and separate to the approval of TMCP. The final consent required is usually but not always, that of the District, which must be in place before TMCP can approve exchange. The sale will usually have been logged as a project before you are instructed and the Managing Trustees, your clients, will be able to keep an eye on when final consent has been entered.
B2 Qualified Surveyor’s Report (QSR)
A QSR must be obtained by the Managing Trustees under section 119 of the 2011 Act and submitted to TMCP for approval. The Managing Trustees are asked to obtain the QSR and TMCP’s approval of it before marketing the Property. If this requirement has not already been fulfilled, please ask your clients to address this immediately.
The QSR must have been approved by TMCP before we can approve exchange. To approve exchange we need to be confident that the QSR is in an approved form and that its recommendations have been followed. Any departures will require the surveyor’s confirmation that such variations are in the best interests of the charity.
If you have not yet been provided with a copy of the QSR by your clients then please ask for a copy without delay so that you can ensure that the transaction follows the recommendations in it. You should refrain from incurring costs in drafting until you have had sight of the QSR.
If the QSR is more than six months old by the time contracts are ready to be exchanged, TMCP will require sight of an updated QSR or written confirmation from the Managing Trustees' surveyor on the firm’s headed paper that the advice and contents of the original QSR remain valid. This policy is recommended by the Charity Commission and has been adopted by TMCP.
B3 Best Price Certificate
The Managing Trustees must obtain a letter signed by the qualified surveyor confirming that (1) the Property has been properly marketed and (2) that the agreed sale price is the best price reasonably obtainable for the Property. Please ensure that a copy of this is sent to TMCP before asking us to approve exchange. This is a requirement under Model Trust 16(b) and s.119(1)(c) of the 2011 Act.
Note that comments such as “the sale price represents fair market value” or “this is a reasonable price to pay in the current market” will not be acceptable. The surveyor must confirm, assuming they are able to, that the price and sale terms are the best reasonably obtainable. If the surveyor cannot do this, do they believe that the Property should be remarketed or that the sale should be delayed or otherwise?
B4 Connected Persons
TMCP requires confirmation from you as to whether or not the proposed buyer(s) is a connected person within the meaning of section 118 of the 2011 Act.
If the buyer is not connected, please complete the Connected Person Certificate with details of the buyer and the Managing Trustees and arrange for this to be signed by the buyer(s). This will need to be sent to TMCP with confirmation that as far as you and your clients are aware the buyer is not connected i.e. the statement is correct.
If the buyer is connected then a Charity Commission Order authorising the sale will be required and the template connected statement set out in paragraph 4(f) of Part 2 of the Sale Template Clauses will be required in the transfer. (See Section B5.2.) If an order is required this must be in place before TMCP can approve exchange of contracts.
B5 Approval of documents
The sale contract and transfer deed must be approved by TMCP before approval can be given to exchange of contracts.
Please ensure that you include the Sale Template Clauses and draft the documentation in accordance with these guidance notes and the surveyor’s advice in the QSR before sending documentation to TMCP for approval.
You need to send the draft documents to TMCP as soon as possible and contact TMCP if you have any queries. Ultimately the Managing Trustees are relying on you to ensure that the documents are drafted correctly and are in the best interests of the charity.
Please note that the Sale Template Clauses are available in a format so that you can copy and paste the template clauses into the documents making only amendments necessary to take account of differences in terminology between your precedent documents and the template clauses.
- No liability on the Board - As Custodian Trustees, the Board will not give any covenants nor undertake any obligations in the contract (or transfer deed). Any obligations or other liability on the part of the seller must fall on the Managing Trustees instead. Accordingly, please ensure the drafting adequately reflects the position of the Custodian Trustees and Managing Trustees. The wording in paragraph 3(c) of Part 1 of the Sale Template Clauses must be included
- Authority to sign - A simple contract can be signed by two or more Managing Trustees. If the contract is to be executed as a deed (e.g. a development agreement) then the TMCP Board will also need to seal and the clauses set out in paragraph 5 of Part 1 of the Sale Template Clauses are required.
- No liability on the Board - As Custodian Trustees, the Board will not give any covenants nor undertake any obligations in the transfer deed. Any obligations or other liability on the part of the Transferor must fall on the Managing Trustees instead. Accordingly, please ensure the drafting adequately reflects the position of the Custodian Trustees and Managing Trustees. The wording in paragraph 6 of Part 2 of the Sale Template Clauses must be used.
- Covenants by the Transferee - If any covenants are to be imposed on the Transferee in the transfer deed, including any Methodist covenants for which the Managing Trustees have received authority from the Methodist Council (see Section B6), please ensure that the covenants are enforceable by both the Board and the Managing Trustees by using the wording set out in paragraph 5 of Part 2 of the Sale Template Clauses or similar.
- Indemnity covenant - If the Property is subject to any restrictive covenants or any other obligations or encumbrances that are capable of being enforced against TMCP following completion, TMCP expects the Transferee to indemnify the Transferor (and for this indemnity to be enforceable by both the Board and The Managing Trustees). Please insert an appropriate indemnity clause based on the wording in paragraph 7 of Part 2 of the Sale Template Clauses or similar.
- Occupational leases - If the Property is to be sold subject to occupational leases then a covenant will also be required to ensure that the Board and the Managing Trustees are released from the Landlord covenants in the occupational lease(s).
- Authority to sign - TMCP will seal and two of its Board Members will sign the Transfer as set out in the template execution clause. Two Managing Trustees will sign the Transfer with the authority of the rest of the Managing Trustees by resolution pursuant to Section 333 of the 2011 Act. The usual execution provisions for individuals apply, as set out in the template execution clause.
- Connected buyer - If the buyer is “connected” under s.118 of the 2011 Act and a Charity Commission order is required, the template connected statement set out in paragraph 4(f) of Part 2 of the Sale Template Clauses will be required. This is required under s.122(3) of the 2011 Act.
It is not a Methodist requirement for restrictive covenants relating to alcohol, betting and gambling etc to be imposed on the sale of Model Trust property. It is a decision for the Managing Trustees. If the Managing Trustees do want to impose such covenants and you have advised them that this is appropriate from a legal perspective, please notify us as soon as possible as we will need to obtain Connexional consent to the imposition of such covenants under Standing Order 943(3). This is an additional consent that must be in place before TMCP can approve exchange.
B7 Contact us
Please contact TMCP Legal for further guidance if you have been instructed to act in relation to transactions involving:
- An auction sale – See Auction Sale Focus Note
- Sale of disused burial grounds – See Burial Ground Guidance and Burial Ground Sale Focus Note
- Sale by way of Formal Tender
- Sale under a conditional contract
- Sale involving overage
Please refer to Schedule 1 for a summary of some of the issues involved and ask for copies of the associated Focus Notes.
Section C Exchange of Contracts
C1 Approval to exchange contracts
As you are aware, contracts cannot be exchanged before exchange has been approved by TMCP Legal. Once TMCP’s legal officers are satisfied that all the requirements set out in Section B have been fulfilled, TMCP Legal will confirm TMCP’s approval to exchange contracts. This approval will last for a period of one month from the date that approval is confirmed. TMCP is happy for contracts to be exchanged during this period subject to your clients’ instructions. If contracts are not exchanged within the month you will need to contact TMCP again so that approval can be reconfirmed. At this stage please confirm why there has been a delay and whether there have been any material changes since approval was last given. If the QSR or QSR update is now more than 6 months old a further update will be required.
C2 Authority to sign the contract
The Managing Trustees have the power to sign the contract on behalf of the seller. The signatures of at least two Managing Trustees are required. You should satisfy yourself that those signing are charity trustees and have been duly authorised by the relevant managing trustee body. If the managing trustee body is a registered charity you can check who the registered charity trustees are on the Charity Commission website. Nobody else can sign the contract and this includes the auctioneers where property is sold at auction. Your clients should have arranged for a resolution to be passed under s.333 of the 2011 Act authorising at least two Managing Trustees to sign documents relating to this particular transaction or to property transactions in general. You may want to check that such a resolution is in place in early course to avoid delays when the contract is sent out for signature.
C3 Agreeing the Completion date
When agreeing a completion date with the buyer please bear in mind that TMCP require at least 10 working days between exchange and completion. This is to allow sufficient time for the TMCP Board to seal the transfer deed and for TMCP Legal to procure the necessary Memorandum of Consent to the sale from the Methodist Council under Model Trust 26. Availability of signatories at short notice cannot be guaranteed.
The contractual completion date should therefore allow for this timescale. Sometimes an “earlier by agreement” provision can be useful. If a shorter period is agreed by the Managing Trustees or you as their solicitor, TMCP cannot be held responsible for a delay in executing the documentation. Please ensure that engrossments are sent to us as soon as possible to that the TMCP Legal has sufficient time to arrange for sealing. Please note the comments in Section E3.
Section D The Period Between Exchange and Completion
D1 Requirements Post Exchange
Once exchange has taken place please let TMCP have the following:
- a copy of the signed contract for our file;
- confirmation of the contractual date of completion;
- engrossed approved transfer for sealing; (please see Section E3); and
- completion statement for approval (please see Section D2).
Please note that the only deductions that should be made from the sale proceeds before the sale proceeds are transferred to TMCP (see Section E) are those permitted under Methodist Standing Order 916. 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.
Please forward a draft completion statement for approval as soon as possible. TMCP Legal can only release the transfer deed and Memorandum of Consent to you once the completion statement has been approved. This process aims to avoid you having to account to TMCP for unauthorised sums already paid out to Managing Trustees or third parties.
D3 Access before completion
The Property is trust property, and, as such, it is not recommended that the Managing Trustees allow the buyer access to the Property before completion. TMCP is not prepared to allow access under a key undertaking or otherwise.
D4 Transfer deed and Memorandum of Consent
TMCP Legal will send the sealed transfer deed and signed and dated Memorandum of Consent to you once these are available provided that the completion statement has already been agreed.
If you have not received these documents 2 working days before completion please contact TMCP to ensure that these are on their way to you to avoid any issues only coming to our attention on the morning of completion (please note Section E2).
The sale proceeds, less authorised deductions only (see Section D2), must be paid over to TMCP under Methodist Standing Orders. Such proceeds will be held by TMCP as Custodian Trustees on behalf of the Managing Trustees.
The net proceeds of sale should be sent to TMCP Finance by BACS Transfer no later than the next working day after the day on which your firm is in receipt of cleared funds.
TMCP Legal will confirm TMCP's bank details in correspondence immediately before exchange.
As Custodian Trustees TMCP are not prepared to allow “completion” on the basis of funds being held to the buyer’s order pending receipt by the Managing Trustees' solicitors of the sealed transfer and Memorandum of Consent or otherwise. If the buyer insists on completion taking place before the necessary completion documents are in place then that must be at the buyer’s risk entirely and sale proceeds should be sent to TMCP Finance as set out in Section E1 and not held to anybody’s order.
Section F Post Completion
F1 TMCP requirements
Following completion please send to TMCP:
- Confirmation that completion has taken place and that the sale proceeds have been sent to us so that we can notify TMCP Finance to expect the funds; and
- Copy completed transfer deed signed by the Transferee.
Please note that the requirements set out in Sections B1, B2 and B5 must be fulfilled before the Property is entered into an auction. The auction itself is taken to confirm “best price” meaning that requirement B3 does not have to be satisfied before the auction. The connected person confirmation (requirement B4) will need to be dealt with in the drafting (see the Auction Sale Focus Note). Please note that TMCP should be contacted for approval as a matter of urgency. Please ensure that documentation is sent to TMCP Legal for approval without delay. Please ask for the Auction Sale Focus Note which includes additional template clauses relating to “connected” persons that must be included in auction contracts.
Sales of disused burial grounds
At the beginning of any transaction you should check with your clients whether the Property includes any part of a disused burial ground. If it does, then please refer to the Burial Ground Guidance, the Burial Ground Sale Focus Note and the Burial Ground Template Clauses.
Please note that sales of disused burial grounds must be by way of the grant of a long lease as specific restrictions must be placed on the tenant’s use of the disused burial ground. Where the burial ground is sold with other land i.e. a chapel or Sunday school, the burial ground ONLY should be disposed of under a long lease and the rest of the property should be sold freehold. It is a matter of TMCP policy that the freehold of the burial ground only must be retained. Potential buyers should be made aware of this from the outset.
The Managing Trustees' surveyor’s advice should be sought as to the length of term (usually anything from 99 to 999 years), the amount of the purchase price apportioned to the burial ground (leasehold interest) where the burial ground is sold with other land (freehold interest) and whether he/she recommends any particular lease terms.
Sale by way of Formal Tender
Like an auction, the requirements set out in Sections B1, B2 and B5 must be fulfilled before the formal tender process is opened and TMCP should be contacted in early course so that we can provide specific guidance.
Please send TMCP the heads of terms in early course so that TMCP Legal can provide any further guidance that may be appropriate before you draft the contract. Please ensure that the contract:
- is drafted on the basis that the deposit is sent to TMCP to hold as stakeholder;
- includes the template clause at paragraph 4(a) of Part 1 of the Sale Template Clauses to provide for possible changes in the Managing Trustees between exchange and completion; and
- includes the template clause at paragraph 4(b) of Part 1 of the Sale Template Clauses to ensure that the contract is non-assignable.
Please contact TMCP for further guidance on the requirements for overage provisions and ensure that the Managing Trustees' surveyor has provided advice as to the length of the overage period, the percentage uplift, the trigger point and any other relevant terms.
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.