Charities and not for profit organisations often enter into informal and sometimes formal arrangements relating to the letting or licensing of premises which they own without considering the consequences that may flow from this. Here we intend to explore some issues that should be considered - some specific to charities, others more general.

You should ensure that any proposed letting or licensing is not inconsistent with your objects. For instance, although it may not be against the objects of a charity to earn an income from its premises, you should be careful about the scale of any such operations because if a charity is seen to be trading beyond permitted limits it can jeopardise its charitable status. Also, by making premises available generally a charity may get into hot water if it allows one party to use its space but not another on the basis that the use by the party it objects to is against the principles for which the charity was set up. Here we refer to the general law and discrimination by the charity, which more likely than not will require the charity to observe the law whilst at the same time offending its members.

The charity should also check that it has the power from a constitutional point of view to enter into such arrangements. From a property point of view it should also make sure that there are no restrictions, whether by way of restrictive covenants on its title to the property or by way of restrictive planning conditions, which would prevent the charity from letting or licensing for a specific purpose.

A charity trustee must ensure when letting premises that the best rent reasonably obtainable is secured from the tenant so as to satisfy the requirements of the Charity Commissioners. Accordingly in order to protect the trustees, a surveyor's report should be obtained to bolster the trustees' argument that is has achieved that, and on some occassions it is compulsory to do so. This only relates to situations where exclusive possession is given to a tenant and does not cover licences where, say, an organistion pays a fee for use of a room for a few hours a week.

Whilst on the subject of the benefit of leases versus licences, charities should ensure that they do not unwittingly give occupants security of tenure. Under the Landlord and Tenant Act 1954 a business tenant has certain statutory rights for instance of renewal once its contract comes to end. If in doubt, and if the charity will at some stage require premises back for its own use, then it should ensure that any arrangement is contracted out of the 1954 Act. This can be done quite simply by serving what is called a warning notice on the prospective tenant and then having a duly authorised representative of the Tenant making a declaration confirming that the Lease is not to enjoy the benefit of the protection of the Act.

You should  also  ensure that you have an adequate amount of occupiers liability insurance in place. Take for example the situation of a play group occupying premises for a few hours each day; we would suggest that cover of circa £5million would be appropriate for this kind of use, whereas the cover is much lower than this under many standard policies.

It goes without saying that whatever arrangements are being entered into they should be in writing and signed by the parties so there is no doubt what has been agreed.

Contact: Nigel Wigin, Partner, Commercial Property nigel.wigin@asb-law.com or 01293 861 240