Leases of commercial premises are often granted to charities for their operational purposes and charity trustees should be aware of the obligations they are undertaking as a result. If the charity is unincorporated, either as a trust or as an association, the trustees’ liability will not be limited and may extend to their personal assets if the charity is unable to meet its obligations.
A provision should therefore be included in the lease, if it can be negotiated, 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.
Charities whose trustees incur significant legal or financial obligations under leases or otherwise may wish 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. It is therefore worth negotiating, if possible, a provision in the lease, permitting assignment without the landlord’s consent to any new trustees of the charity or to any CLG or CIO which takes over the charity’s undertaking and engagements.
Commercial property lawyers familiar with charity land transactions can help ensure that the above safeguards are put in place and will have colleagues able to deal with charity incorporation if required.
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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.