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The voice of Scotland’s vibrant voluntary sector

Published by Scottish Council for Voluntary Organisations

TFN is published by the Scottish Council for Voluntary Organisations, Mansfield Traquair Centre, 15 Mansfield Place, Edinburgh, EH3 6BB. The Scottish Council for Voluntary Organisations (SCVO) is a Scottish Charitable Incorporated Organisation. Registration number SC003558.

An introduction to community asset transfers

 

All you need to know about Community Transfer Bodies

For community based organisations, owning a property can provide a sustainable income stream and a secure base for community activities, service delivery and local enterprise.

Community based ownership of property or other local assets also enables the local community to take control of buildings or spaces which are important and sometimes vital to the local community and local economy, as well as providing spaces to meet the needs and priorities of the local area.

A Community Asset Transfer (CAT) is one possible solution for the transfer of a publicly owned asset (usually land or buildings) to a community organisation at less than market value, or for nil consideration (no cost). The idea behind a CAT is to create a recognised process for a community body to request the transfer of property from a public authority to make better use of that property for the benefit of the community. The availability of a CAT recognises that in many instances local community based charities are better placed to serve the local community and meet its needs and may have a longer term plan for the community.

Organisations looking to pursue a CAT need to be aware of a number of issues and requirements to ensure that any property supports their charitable aims both now and in the future, and to avoid the pitfalls which may hinder them.

Requirements of Community Transfer Bodies

In order to make use of the CAT legislation, it is important for any community based organisation to check that it meets the criteria to be considered a relevant ‘Community Transfer Body’ in terms of the Community Empowerment (Scotland) Act 2015 (the “2015 Act”).

A Community Transfer Body means either a

  1. Community-controlled body, or
  2. a body that is either
  3. designated as a community transfer body by the Scottish ministers, or
  4. falls within a class of bodies designated as community transfer bodies by the Scottish ministers for the purposes of the 2015 act.

Many local organisations will already have constitutions which comply with one or more of the requirements to fall within the category of a community controlled body which, among other requirements, must have a written constitution which defines the community that it serves. A community can be any group of people which has something in common, such a geographical location or interest. Most CATS will be submitted by organisations falling within the definition of a community controlled body.

Whilst an organisation does not need to be an incorporated body or charity to use the CAT process, if the body is looking to take ownership of property (rather than a lease or other right), the organisation must be a SCIO (Scottish Charitable Incorporated Organisation) or a Community Benefit Company or Community Benefit Society.

If an organisation does not meet the necessary requirement, it will need to amend its constitution, or consider setting up a separate body specifically to deal with the CAT.

Relevant authorities

A CAT can only be used to request a transfer of an asset (such as land or building(s)) from a relevant authority, as defined within the 2015 act. This includes the Scottish Government, local councils, health boards and some other Scottish public bodies. It can also include a company which is wholly owned by one or more relevant authorities. Therefore it may be possible to use the CAT process to request an asset from a wholly owned company which was set up by a local authority (or jointly by two or more local authorities) if a Community Transfer Body believes that it would be better placed to utilise the asset for the benefit of the community.

Asset transfer requests

In order to proceed with a CAT, an asset transfer request must be made in writing (which includes email or other electronic forms) to the relevant authority that owns the asset/property that the community transfer body is seeking to acquire and must contain the relevant information set out within the 2015 act.

The price paid for the property may differ depending on the value or benefit to the community that the CAT could bring to the local area. In other words, the relevant authority will balance the benefit to the community against the market value of the property and decide if it is worth giving the land at a discount or for free (usually subject to conditions).

The relevant authority must acknowledge the request and provide timescales for a decision to be made by the relevant authority.

Importantly, once a CAT request is submitted to a relevant authority, the relevant authority must not sell the property to any other party until the request has been dealt with (unless the property was already advertised for sale or lease or negotiations to transfer or lease the asset have already begun with a third party).

Decision notices

Following a CAT request, the relevant authority will issue their decision in the form of a decision notice. This will include the terms and conditions that the relevant authority wants to include in the contract for the transfer of the property.

With a CAT, the decision notice plays an important part in determining not only the terms and conditions of the offer and legal transfer of the property, but can also have a huge impact on the future use of the property. This is because the decision notice may set out what title conditions (which are sets of rules governing the use of a property) will apply to the property following the transfer.

In order to ensure that the decision notice does not contain any provisions which will ultimately be unacceptable to the Community Transfer Body, we would recommend taking legal advice prior to agreeing the terms of the transfer with a relevant authority.

Reviews and appeals

If a community transfer body is not happy with the decision made by a relevant authority, it can ask for a review or appeal. The Community Transfer Body must ask for a review or appeal of the decision notice within four weeks (20 working days) of it being issued.

Offer and taking ownership

Once the decision notice is issued, and assuming the Community Transfer Body does not request a review or appeal of the terms of the decision notice, the Community Transfer Body must make the correct offer to the relevant authority based on the sometimes strict terms and conditions set out in the decision notice. There is usually a time limit specified for receipt of the offer by the relevant authority (which will be no less than six months from the date of the decision notice). If the offer does not meet all of the requirements of the decision notice, the relevant authority may be able to reject the offer.

Deadlines for the transfer of property can be extended if both parties agree to do so, or if the Scottish ministers instructs the relevant authority to allow more time after an application by the Community Transfer Body for an extension. The legal and physical transfer of ownership can occur at a later stage, as agreed between the parties and set out in the final contract/missives. This can provide the Community Transfer Body additional time to deal with other factors, such as funding or planning permission.

In addition to the CAT specific requirements, a solicitor also requires to check the normal legal matters which affect all property purchases/leases.

Key considerations around the future use of the property and funding options

There are additional matters to be considered if a Community Transfer Body is utilising third party or public funding in connection with a CAT, or if the relevant authority decides to make it a requirement within the decision notice that a standard security (commonly known as a ‘mortgage’) is to be granted in its favour over the property to protect its interests.

A standard security is usually required to;

  • secure the repayment of the loan;
  • facilitate enforcement of the loan conditions; and/or
  • procure performance of the obligations tied to the funding or the CAT.

Aside from ensuring that it has the requisite power to grant a standard security, a Community Transfer Body should also be acutely aware of the conditions and obligations created in the standard security which may amongst other things, limit the availability of future funding.

A Community Transfer Body should consider whether it may need to borrow further money in the future and whether there will be scope to do this within the context of the security conditions about to be entered into with the relevant authority. Most mainstream lenders will want what is known as a ‘first ranking’ standard security. If the relevant authority or a grant funder has a standard security over the property, they may agree to accept a ‘second ranking’ standard security to allow the mainstream lender to take priority.

Many CATs are approved subject to certain conditions or use restrictions. These conditions are aimed at ensuring that the land is used for the benefit of the community and to avoid any risk that the property turns into a more ‘commercial’ venture aimed at profiting off what was community property. It is important to have in mind the future use of the property (or potential uses) when agreeing to the terms of the decision notice to ensure that the charity can comply with the CAT conditions and evolve in the future to support the community.

There is a lot to consider as an organisation looking to pursue a CAT, due to the unique and sometimes restrictive nature of the CAT process. To view the full details around the considerations please visit the dedicated section on Gillespie Macandrew’s website here.

Law firm Gillespie Macandrew provides comprehensive legal services to charities and third sector organisations and support the entire lifecycle of a charity including charity formation, reorganisation and wind up, administration and governance as well as property and employment law services.  We have specific expertise in community asset transfers and the particular challenges they present.

Kevin Sturgeon is a senior solicitor at Gillespie Macandrew.

 

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