Warning To Charity Trustees – Non-Compliance With Statutory Disposal Requirements Could Put Your Contract At Risk

When a charity disposes of a property, the Trustees must comply with the statutory requirements under the Charities Act 2011 (CA 2011) (for more detail on the requirements, please read this article).

The importance of complying with these requirements was highlighted in the recent case of The David Roberts Art Foundation Ltd v Riedweg [2019] EWHC 1358 (Ch).

The David Roberts Art Foundation Ltd v Riedweg

Case summary

The David Roberts Art Foundation Ltd (DRAF), the claimant charity, contracted to sell a property in London to Ms Riedweg for just over £8 million. However, Ms Reidweg failed to complete on the fixed date for completion. Subsequently, DRAF terminated the contract and commenced proceedings to recover the balance of the deposit, together with damages for their loss (as a result of having to re-sell the property at a much lower price of £5.5 million).

Ms Reidweg argued that the contract was void because DRAF had not complied with the relevant provisions of the CA 2011. It was argued that:

” (a) the statement in the contract for sale as required by section 122(2) CA 2011 had not been included; or
(b) to the extent that it was acceptable for the statement to appear in a transfer appended to the contract, it was incomplete; and
(c) the property had not been advertised, and  a survey report had not been considered, as required by section 119(1) CA 2011.”

Whilst (a) and (b) were of concern, the Judge’s view was that Parliament could not have intended that a failure to include the statement in the contract would lead to it being void and so took a pragmatic view of the legislation, finding that a failure to include the relevant statement in a contract for sale by a charity was not fatal, as the obligation was subsidiary to the principal requirements of CA 2011.

With regards to (c), although the Trustees of DRAF sought advice from a surveyor, they had not complied fully with the advice requirements. The Trustees had failed to advertise the property for sale on the basis of advice obtained from the surveyor. Further, there was no evidence that they had “considered” the advice, that the terms for the sale were the best that could reasonably be obtained.

In cases of non-compliance, the Judge thought that not every incidence of non-compliance would invalidate the contract. His view was that the overriding test emerging from the advice requirements was that the terms of the disposition had to be the best that could reasonably be obtained for the charity.

The Judge also remarked that these requirements were ‘opaque in certain respects, particularly with regard to the order in which the Trustees should proceed.’ If a charity was not complying with the requirements, it was for the charity to demonstrate that compliance (e.g. advertising the property, and consideration of the advice) would have made no difference.

The Judge dismissed DRAF’s application for summary judgement as this wasn’t considered appropriate in this case because there had to be an investigation about the process of marketing the property and decision making from DRAF and so the question as to the validity of the contract was left unanswered.

Due to the uncertainty left by this case, it is a reminder of the importance of seeking legal advice to ensure that necessary procedures are followed in order to protect the interests of a charity.