Are you a charity taking on a new lease? Consider incorporation first….

News - 14/12/2015

Leases of commercial premises are often granted to charities for their operational purposes. However, if your charity is unincorporated, the liability under the lease will not be limited and may extend to their personal assets.

To protect your trustees, a provision should therefore be included in the lease limiting the liability of the trustees to the extent of the assets of the charity available to satisfy it, and terminating the liability of each individual trustee if he ceases to be a trustee of the charity, whether or not the lease has been formally assigned to the continuing trustees.

As such, if you are taking out a new or a first lease, it might be a good time for you to consider incorporation as a company limited by guarantee (CLG) or as a Charitable Incorporated Organisation (CIO).  The latter has the advantage of being regulated only by the Charity Commission and not also by Companies House as in the case of a CLG.  If a charity incorporates in either of these forms, its property (including any leasehold property) will need to be transferred or assigned to the new entity.

If a lease is granted to a charity while it is unincorporated, consideration should therefore be given to what might happen if incorporation takes place, or even if new trustees are appointed without incorporation.  Some leases prohibit assignment altogether, while many prohibit assignment without the landlord’s consent, which may be refused if the landlord is not reasonably satisfied with the assignee’s financial status.

The commercial property lawyers on our specialist Not for Profit Team are familiar with charity land transactions and can help ensure that the above safeguards are put in place. We will also be happy to assist with charity incorporation and if you would like to lean more, get in touch with Laura Harper at [email protected]aw.com or find out more at https://www.morrlaw.com/not-for-profit/.

Disclaimer:

Although correct at the time of publication, the contents of this newsletter/blog are intended for general information purposes only and shall not be deemed to be, or constitute, legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article. Please contact us for the latest legal position.