Extending the Right to Buy: stretching charity law to its limits?

Whilst not all RPs are charitable, given the nature of the activities they undertake, alongside the significant tax advantages of charitable status, the majority are. This may be in the form of a charitable company registered with the Charity Commission, or a registered society that has obtained recognition of charitable status from HMRC (an ‘exempt charity’).

The law

For general disposals, section 117 of the Charities Act 2011 (the Act) provides that a registered charity must not dispose of land without an order of the court or the Commission, unless it has obtained the ‘best price’ (evidenced by a valuation report) and the trustees of the charity authorise the disposal. This provision is enforced through a restriction on the title to the land, which cannot be removed until the charity certifies that it has complied with the provisions of the Act.

There are a number of exceptions to this – most notably where general authority is given for a disposition under legislation. This means that disposals under a statutorily extended RTB would not need to comply with these requirements (and no doubt would follow the current rules by which the section 117 restriction on the title is automatically removed).

But we should remember that a disposal, under an extended RTB, in many cases could be to a charitable beneficiary of an RP.  It is generally recognised that a disposal for less than best price is permitted, as long as it “furthers the charity’s charitable objects” (i.e. the purposes for which a charity is set up, as set out in its constitution). The charitable objects of an RP will include the provision of social housing to those in need. Enabling social housing tenants (who are presumed to be in need) to buy their home at a discounted rate, arguably falls within most RP’s charitable objects.

Principles

This is perhaps not, therefore, a legal argument about whether a charity can sell under the RTB, but more of a debate about ‘what it means’ to be a charity. Naturally this evolves over time – traditionally, trustees (board members) of charities were not paid because of the philanthropic nature of their role. However, surveys suggest that 82% of the top 60 not-for-profit RPs in England now pay their board members, and the Regulator has quietly endorsed the view that a paid board is perhaps better suited to the new expectations of board member performance. This is permitted by the Charity Commission much more frequently than for other charities, and reflects the increasing demands placed upon trustees in a sector that has diversified significantly, and become more complex, over the last 10 years.

However, recognition that the role of trustees is changing within the sector is very different to legislating the way in which charity assets are dealt with, and dictating how a charity should fulfil its objects. RP’s assets of course go to the heart of their business, and are the route by which they fulfil their objects – it has always been fundamental that a charity has the discretion to determine how it achieves these. As RPs are forced to deal with the fall-out from such a policy, it is inevitable that funds and resources will be diverted from their primary purposes.

Where now?

Although we don’t have clarity yet as to what the proposals will be as regards extending the RTB to RPs, it is clear that RPs are expected to prepare for the worst now, as far as possible, through stress testing their assets.  This includes careful consideration of the effect of the changes on funding arrangements (asset cover in particular) and putting in place appropriate mitigation strategies where possible. The Regulator will expect RPs to be open and transparent with it about potential challenges they face when dealing with the changes. The Regulator has made it clear that it expects RPs to be ready to implement the changes, and that it will take a hard line with RPs that do not meet these expectations.

Trustees are expected to take a long-term view when considering a proposal – we can only hope the Government embraces this principle when drafting the forthcoming Housing Bill.

Contact Sarah Greenhalgh.

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