Are schools free to sell their land to expand or improve their facilities?
PUBLISHED: 12:45 28 August 2019 | UPDATED: 12:45 28 August 2019
Schools are under constant pressure to update their facilities and resources to meet changes to educational requirements
The sale of land can be a useful way of releasing funds to do so but there are various legal traps schools can fall into if they are not properly advised.
A recent case highlighted the danger of not structuring the sale of the school land to coincide with the closure of the school where the land being sold had been acquired subject to legal rights of a previous land owner and its successors to a share of the sale proceeds if the land ceased to be used as a school prior to the sale.
The cessation of the school use before the sale meant that the successors in title to the original land owner who had transferred the land to the school in the early part of the twentieth century were entitled to more than 93% of the sale proceeds on the sale of that land.
Traps for the unwary
In the nineteenth century the emphasis on charitable philanthropy extended to land gifts made to educational and religious organisations.
Under section 2 of the School Sites Act 1841 (the "Act") a landowner could gift, sale or exchange up to 1 acre of land as a site for a school for poor persons, or for the residence of the school master or school mistress, or otherwise for the purpose of the education of such poor persons in religious and useful knowledge.
If the land ceased to be used for that purpose then it would immediately revert to the original party who had transferred the land (the "Donor") or the successors in title to the Donor and removing it from the school's ownership.
Many village schools were established using this legislation and when the Law Commission reviewed the Act back in 1981 it estimated that there were more than 2,000 schools in existence the sites of which had been transferred under the Act. It therefore continues to impact on schools today.
Later changes to the legislation during the nineteenth century extended the Act to the grant of sites for certain schools or colleges for the religious or educational training for sons of yeomen, tradesmen or others and theological training of candidates for holy orders.
Independent schools may therefore have acquired land subject to these provisions.
The legislation was updated in 1987 so that instead of land reverting to the original Donor or its successors, a trust of land would be established under which the proceeds of sale would be held on trust for the Donor and his successors in title.
Exceptions to the rule
One exception to this rule provided that where it was necessary to sell or exchange land acquired under the Act for a more convenient or eligible site, the land could be sold or exchanged and replaced and the funds used to purchase another site, or improve other premises to be used for that purpose.
Until recently it was thought that if alternative premises were being purchased then the sale of the existing school acquired under the Act could be concluded even if the school use had ceased at that property before the sale took place.
A very recent court decision found that where Oxfordshire County Council had already purchased the new school premises and had ceased using the old site and moved the school across to the new property before the sale, then the rights of the original Donor and his successors still existed.
This entitled the Donor's successors in title to more than 93% of the value of the land sold which was a very expensive oversight.
The reason for the court's decision was that the exception under the Act no longer applied once the site had ceased to be used for educational purposes and at that point the original Donor and its successors' rights arose.
In order to have avoided these consequences the Council should have made sure the existing school use continued until they were in a position to sell the land.
Steps that schools need to take
- Pull together all the title deeds and documents for the school's land and instruct a suitably qualified solicitor to check how the land is owned to see if any of these rights may apply
- If those rights are identified the Donor and its successor's interest should be investigated
- The expansion/redevelopment programme should be structured to ensure the school use of the original site does not stop before the sale of the land takes place
- If appropriate, suitable borrowing should be in place where necessary to fund the acquisition or development pending the sale of the land
There are other restrictions on schools who are selling the land depending on the type of school they are (whether an exempt or non-exempt charity) and if the land could be subject to permanent endowment (property which was given to the school to be held in perpetuity and subject to a restriction on its being expended).
In order to minimise their risk and maximise their assets, schools need to ensure they take appropriate legal advice before they plan for any development, move or expansion to identify legal problems early and adopt an appropriate strategy to protect their position.
George Duncan is a Partner and Claire Timmings is a Legal Director in the Charities and Not for Profit Team at Charles Russell Speechlys LLP. George can be contacted on email@example.com and Claire can be contacted on firstname.lastname@example.org
The above is a general overview and we recommend that independent legal advice is sought for your specific concerns. If you require further information in relation to the points raise in this article please do not hesitate to contact Claire or George.