NB: We are in the process of reviewing the contents of this article in the light of the changes recently introduced to the Charities Act.
Please note in this article we assume that all churches or organisations are charities and therefore need to comply with charity law.
A building project can be an exciting opportunity to grow your ministry and steward the resources that God has given you. For such a big project, you won’t be surprised that there are many legal issues you need to consider before you begin. That’s why we’ve provided here some of the main issues your church or organisation will need to think through.
Governance and responsibility
The governance structure of your organisation is key to any questions concerning your property. It determines who is liable and responsible for it. If your organisation or church is currently unincorporated, we recommend that you consider becoming a CIO before embarking on a major build project as this makes the process more straightforward. Please see our CIO booklet for more information on this. If your wish to remain unincorporated, then you need to consider the roles of the various parties involved. While the building project will be the responsibility of the managing trustees of your church or organisation, you will need to consult with the holding trustees.
Governing Documents
One of the responsibilities of a charity’s trustees is to make sure you are familiar with your church’s or organisation’s governing documents. These documents, which lay out the structure and scope of your charity, will affect your building project. You need to make sure the proposed project is consistent with these documents. The governing documents may contain specific prohibitions which would prevent the building project from going ahead or there may be specific requirements to be followed (for example, obtaining a certain body’s prior approval or the holding of church meetings in a particular way or requirements for voting).
The Trustees’ Duty of Care
Even if the governing documents permit the building project to be carried out, the trustees must be satisfied that the building project is in the best interests of the charity and in making this decision they need to ensure that they exercise all reasonable care and skill. In order to fulfil this duty, trustees must:
- take professional or other appropriate advice when in doubt;
- be clear that any payments can be justified;
- ensure that any conflicts of interest are properly and openly managed;
- ensure that the best value is being obtained (in most cases, you should obtain at least three quotations and it can be useful to research how much other organisations/churches may have paid for similar services in similar circumstances. Best value does not always mean lowest price. You should have clearly documented reasons for the decision you have reached); and
- ensure that the charity can afford the payments.
Connected Persons
You need to be careful about who benefits from the building project. There is a principle in charity law that charity trustees must not directly or indirectly benefit from the charity (e.g. by making contracts to do business with the charity). This prohibition applies to the trustees as well as “connected persons” (broadly, family members or businesses connected with a trustee). This means that if you wish to instruct a trustee, member of staff or anyone with a connection to your organisation, or their family or colleague, in respect of its building project, great care must be taken to comply with the conditions set out in the Charities Act 2011.
Secured Lending
You may wish to wish to grant a mortgage/legal charge over the property in order to obtain finances for the project. Only the legal owner can grant a mortgage/legal charge and so if your organisation in an unincorporated body then the holding trustee would need to be involved in entering into the required deeds.
Before granting a mortgage/legal charge to secure a loan, you will need to comply with Section 124 of the Charities Act 2011. This section of the Charities Act requires trustees to obtain and consider proper advice prior to making a decision to grant a mortgage. See section 9 of the Charity Commission’s Guidance Note CC28. We can provide further information on the requirements of the Act.
Value Added Tax
Alterations and repair work to your buildings may be subject to VAT. Although there are some exemptions, this is a very complicated area and you should take appropriate professional advice. Some organisations and churches have expected elements of their project to be zero-rated but subsequently found that VAT was payable, significantly increasing the cost of their project.
In particular, you should be aware of the important distinction between “annexes” to charitable premises, which can be zero-rated for VAT, and “extensions” which are subject to VAT at the standard rate. Most building projects which churches or organisations undertake are correctly defined as “extensions” since they make use of and improve or extend the existing building. An annex is a separate building which must satisfy certain criteria to be zero-rated for VAT, e.g. it must have its own entrance and be capable of being used independently from the main building.
If exemption from VAT is sought, you should obtain a letter from HM Revenue and Customs confirming that the project will be exempt from VAT.
For more information about VAT or for contact details for HMRC please go to https://www.gov.uk/vat-charities
Planning Legislation
With all building work, the trustees are responsible for complying with the relevant planning rules and building regulations (regardless of the need to apply for planning permission and/or building regulations approval or not). Failure to comply with the relevant rules will result in the owner being liable for any remedial action (which could go as far as demolition and/or restoration). The general advice is to always discuss your proposals with the relevant Local Planning Authority and Building Control Service before starting work.
For more information on making a planning application please go to the Planning Portal.
Listed Buildings
It is an offence to demolish, alter or extend a listed building without proper consent. The process is similar to obtaining planning permission. For more details, please go to the Historic England website.
In some cases, repairs and alterations may need to be carried out with materials that are in keeping with the original buildings, which could prove expensive, although if your building is Grade I or II* listed there may be grants available to assist with the work. Check before you apply, but generally, these works will need consent:
- Changing windows and doors
- Painting over brickwork
- Removing external surfaces
- Putting in dormer windows or roof lights
- Putting up aerials, satellite dishes and burglar alarms
- Changing roofing materials
- Moving/removing internal walls
- Making new doorways
- Removing or altering staircases
Registration as a Place of Public Worship
Buildings which are used for public worship may be registered with the local registry office as a place of worship under the Places of Worship Registration Act 1855. The advantage of registration is that the church does not have to pay business rates on the property. (“Business rates” or “Non-domestic rates” are the non-domestic equivalent of Council Tax). Under the Act, it is only the parts of the building that are used in connection with public worship that qualify for the exemption. Therefore, when a building is being registered, it is necessary to send a floor plan of the building to the registry office identifying what the rooms are used for. If the building project alters the floor plan of the building, the managing trustees will need to send a revised floor plan to the registry office if the building has been registered.
For more information about registration as a place of public worship please see the Government website.
This information has been provided by solicitors working for Edward Connor Solicitors. It is designed for the purpose of knowledge sharing only and does not constitute legal advice.
