By Samantha Pritchard and Eaden Hardcastle, Muckle.
A narrated version of this blog is available at the bottom of the page
The pandemic and the cost-of-living crisis have greatly influenced how many charities now choose to occupy space. Some have reduced the size of their premises because of staff choosing to work from home or hybrid work. Others have downsized when their current lease has ended to manage cash flow.
It is increasingly apparent that many charities are now actively choosing to move towards insecure tenancies: licences to occupy or tenancies at will. We are seeing more and more charities that now share space with other charities as a means of sharing costs, or that occupy office space of a company as a way for the company to provide in-kind support. This approach does not come without risk.
The Charity Property Matters Survey, a bi-annual report conducted by the Ethical Property Foundation (EPF), highlights that many charities across the country now have such insecure tenancies and that some of these insecure tenancies are from local authorities.
Antonia Swinson, Chief Executive of the EPF said: “Without security of tenure, [charities] are effectively squatters in their buildings: no security, no rights, no future. If they are evicted, grant funding and donations spent on making improvements are lost and they could face complete collapse.”
Charities should, therefore, ensure that they understand what kind of tenancies they hold, and the rights and risks that arise as a result.
Types of tenancies
Lease
A lease provides a charity with the right to exclusive possession of land for a certain period. This means the charity, and only the charity, is entitled to occupy the property and it can stop others from accessing the property (even the landlord). A formal lease may also grant security of tenure which allows a tenant in a commercial premise (including a charity tenant) to remain in the property after the lease ends and to require a renewal lease to be granted.
Leases, particularly for longer terms, can also unlock access to grant funding, including for those charities involved with sports and community facilities, heritage assets or similar.
Although a lease provides more protection to a charity, it is also inflexible. A lease cannot be ended before the contractual end date unless an option to break the lease has been agreed between the parties. This lack of flexibility can be off putting, particularly for charities which are uncertain of their longer-term plans or for whom any financial commitments associated with a lease are too risky.
Licence
A licence is a permission to do something on someone’s property. A licence is a personal right with no security. It makes it lawful for a charity to occupy premises where otherwise that occupation would be considered unlawful trespassing. A licence will usually be for a set period of time and for a set fee however there will often be an ability to terminate early for both parties.
Tenancy at will
A tenancy at will is like a lease; however, either party may terminate the tenancy at any time.
Deciding on a tenancy
For some charities, the decision about what kind of tenancy will suit them is based purely on what is available or affordable at the time. For others, it will be determined by the minimum requirements of major funders, which may require a certain level of security of tenure to provide funding.
But where a charity has more discretion in determining its approach to occupying premises, the level of security the charity wants or needs from its premises should be factored into decision-making.
Generally speaking, the greater the security of tenure, the lower the flexibility the charity has to exit arrangements. The more insecure the tenancy, the more freedom the charity has to move on when it sees fit.
Where a charity chooses an insecure tenancy, it should think very carefully about how much it will need to invest in the premises to make them fit for purpose for its operations, or else run the risk of criticism if that investment is seen as ‘wasted’ by key stakeholders (or the Charity Commission) if the tenancy comes to an end far earlier than predicted. Other costs like the costs of an urgent relocation, or making good any damage on exit should also be factored in. This may make insecure tenancies less attractive than they first appear.
Whatever approach you take, we would always advise that the agreement you reach with your landlord is documented in writing and that you seek independent legal advice to ensure your interests are protected and your obligations under the arrangement are clearly understood.
For charity property advice, please contact Eaden Hardcastle using eaden.hardcastle@muckle-llp.com or 0191 211 7810.
For more general queries on charity law, please contact Samantha Pritchard using samantha.pritchard@muckle-llp.com or 0191 211 7905.
