REVERTER OF SITES ACT 1987 OG27 B2

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OPERATIONAL GUIDANCE

REVERTER OF SITES ACT 1987

MAKING A SCHEME UNDER S.2 OF THE 1987 ACT

OG 27 B2 – 18 March 2008

Purpose

This guidance explains the procedure for making a Scheme under s.2 of the 1987 Act (as amended by paragraphs 81-84 of Schedule 8 to the Charities Act 2006).

Functional responsibility

For information

All operational divisions

Contents

1. Making a Scheme
2. Contents of the Scheme
3. Insurance against claims
4. Public notice before and after making a Scheme
Glossary of Terms used in this Guidance

Index to further related information


The Law	Refer to a lawyer	Refer to an accountant

1. Making a Scheme
	1.1 Conditions to be satisfied 1.2 Public notice of proposal to apply for a Scheme 1.3 Statutory declaration 1.4 Receipt of application

	1.1 Conditions to be satisfied
	A Scheme under s.2 of the 1987 Act may be established only:
	on the application of the trustees of the new trust of land;
	on satisfaction by the trustees and ourselves of the conditions laid down in the Act (see section 1.2).
	It is recommended that the trustees apply for a Scheme as quickly as possible. In the case of former schools for a religious denomination originally created under s.2 of the School Sites Act 1841, the trustees will need to confirm whether the DfES will be including the property in an Order under s.554 of the Education Act 1996. See OG 27 B4. In these cases we can only make a Scheme under the 1987 Act where the DfES has decided not to proceed with an Order.
	Unlike the Schemes we make under the Charities Act 1993, there is no provision for us to make a Scheme under s.2 of the 1987 Act of our own motion; if the trustees refuse to make an application then the Scheme cannot go ahead. If this is the case, then advice should be sought from Legal Division.

	1.2 Public notice of proposal to apply for a Scheme
	Specific requirements as to the publicity to be given to the trustees’ proposal to apply for a Scheme are laid down in s.3 of the 1987 Act.
	Unless:
	the new trust of land is treated as having arisen before the commencement of the Act,
	the trustees must publish notices notifying their intention to apply for a Scheme:
	in two national newspapers;
	in a local newspaper circulating in the location of the relevant land; and
	in a prominent position on the relevant land so that, as far as practicable, it can be easily read without going on the land. This notice must be in position for not less than 21 days during the first month of the period laid down for any beneficiary to give notice of his claims, except that, if the land is not under the control of the trustees, and it is not reasonably practicable for them to display such a notice, they need not do so.
	In addition, the trustees must:
	have considered what other steps could be taken to trace any beneficiary and to inform them of the application for a Scheme; and
	have taken such of those steps as they consider reasonably practicable.
	Each of the notices described above must:
	set out the circumstances that have resulted in the new trust of land arising;
	state that an application is to be made for the establishment of a Scheme with respect to the trust property;
	specify a period for the notification to the trustees of claims by any beneficiary which must end not less than three months after the date of publication of the last of the notices; and
	contain a warning to every beneficiary that, if they wish to oppose the extinguishment of their rights, they must give notice of their claim to the trustees as specified in the notice.
	The trustees are responsible for ensuring that the notice is technically accurate and sufficient. Any request by trustees for us to approve a particular notice should be declined. We can, however, offer a form of wording which may assist them – see OG 27 C1. Caseworkers should present this as an example only. We cannot give any guarantee for technical sufficiency, which is for the trustees to establish with their legal advisers.
	Any representation from persons claiming to be a beneficiary, received by the trustees as a result of the publicity must be dealt with by them, in consultation with their legal advisers if necessary, before an application for a Scheme can be made.

	1.3 Statutory declaration
	Having:
	taken action as set out above; and
	the period specified for any beneficiary to notify claims having passed;
	Or
	having decided that such action is not required;
	The trustees must provide a statutory declaration to the effect that:
	they have complied with the requirements of s.3 of the 1987 Act (that is, they have taken the action set out in section 1.2 and the period within which claims by any beneficiary may be notified to the trustees has passed); or
	as having arisen before 17 August 1987;
	and:
	there are no valid or outstanding claims by any person to be a beneficiary of the trust; or
	if there are any such claims, each actual or potential beneficiary has consented to the establishment of the Scheme.
	The trustees are responsible for ensuring that the form of statutory declaration is technically accurate and sufficient. Any request for us to approve the form should be declined. We have a form of words – see OG 27 C2 - which may assist trustees. Caseworkers should present it as an example only. Trustees should establish its technical sufficiency with their legal advisors.
	For the purposes of making the statutory declaration referred to in s.2(7) of the 1987 Act, the trustees need consider only the claims of beneficiaries of whom they are aware at the conclusion of the process in s.3 of the Act. We can only make a Scheme where, if a beneficiary is identified, they have formally renounced their claim or the court has rejected their claim. We cannot make a Scheme where a beneficiary is identified and they refuse to renounce their claim.
	The options available to the trustees in relation to claimants include:
	accept the claim if only one claim is made, and the trustees are satisfied as to its validity;
	persuade all the claimant(s) of whom the trustees are aware to withdraw their claims and to consent to the making of the Scheme possibly on terms that payments are made to the claimant(s), but the trustees would then need to be satisfied that no other claim could subsequently be upheld during the 5 year period referred to in s.2(4) of the 1987 Act;
	suggest that the claimant(s) apply to court to have the validity of their claims tested – claimants may be reluctant to take the risk of having to pay the costs;
	the trustees could apply to court to test the validity of the claim or claims which have been made – this would involve the trustees in some expense, but the Court would normally make provision for the expenses of the application to be paid out of the trust property; or
	the trustees could sell the trust property and pay the proceeds of sale into court – the trustees would be discharged from the trusts and they would leave it to the claimant to prove his or her title to the Court.

	1.4 Receipt of application
	An application for a Scheme may only be considered by us if it is accompanied by a statutory declaration. This may be taken as conclusive evidence that its contents are true unless there are clear indications that it is not.
	For example, it is the duty of the trustees to deal effectively with anyone who claims to be a beneficiary of the new trust of land. If the trustees make a statutory declaration that there are no claims outstanding, we should accept this, unless we have good reason to believe that the statutory declaration is false. If we are notified of a claim, the case should be referred to Legal Division for advice on the question whether we should still rely on the statutory declaration that there is no outstanding claim.
	The application should be made under s.2 of the 1987 Act – it is not appropriate to use the form of application for a Scheme under the 1993 Act.

2. Contents of the Scheme
	2.1 Character of new trusts 2.2 Extinguishing rights 2.3 Model clauses

	2.1 Character of new trusts
	The Scheme may include other provisions deemed necessary or desirable for the administration of the charity, but its prime purpose is to:
	extinguish the rights of the beneficiary; and
	provide new charitable trusts for the property.
	Section 2 of the 1987 Act, as amended by the 2006 Act directs that in deciding what new charitable trusts are appropriate, we must have regard to:
	the desirability of securing that the property is held for charitable purposes which are close to the original purposes, whether charitable or not, for which the trustees held the land before the reverting event; and
	the need for the new purposes to be capable of having significant social or economic effect.
	In determining the character of the original purposes, we have discretion to give greater emphasis to the class of people or the locality that benefited from those purposes than to the nature of the benefit.
	Our discretion, in determining what is similar to the original purposes, to focus on the area of benefit or the beneficiary class rather than the type of benefit provided, together with the new requirement to ensure that the new purposes are capable of significant social or economic effect, gives us great flexibility in deciding on new charitable purposes. For example, in appropriate cases, former school premises that are no longer needed for educational purposes may be settled on charitable trusts for use as a community centre for the benefit of the same locality.
	The reverted premises would typically have been permanent endowment. In cases where they are to be sold rather than used for a new purpose, it will usually be appropriate to direct in the Scheme that the proceeds of sale shall be held on trust for investment, the income being made applicable for suitable charitable purposes in the area.
	The direction of the trust for investment reflects the intention of the original founder of the charity to establish a charity with a degree of permanence in the services which it provides to the public.
	But there is no strict rule which requires the direction of a trust for investment in all cases; considerations of social utility are also relevant. The trustees may well be able to convince us that the expenditure of the proceeds of sale on, for example, the development of a local educational or recreational amenity is socially more useful than the direction of a trust for the investment of the proceeds of sale.
	You should take legal advice before agreeing not to direct a trust for the investment of the proceeds of sale.
	The amount of the proceeds of sale is, of course, relevant to the decision on what is their most socially useful cy-près application. Section 75 of the 1993 Act, as amended by the 2006 Act, contains wide powers for charities to dispose of investment permanent endowment. There would be little point in insisting within the Scheme that proceeds of sale should be invested in cases where the trustees would immediately be in a position to use s.75. For further details of these provisions see OG 44 and CC 44 B4 Permanent Endowment – what it is and when can it be spent? Legal advice need not be taken where we are proposing not to direct a trust for investment in such a case.

	2.2 Extinguishing rights
	Provision must be made in the Scheme to protect, for a period, the rights of any beneficiary who has not consented to its establishment. In the event of such a person notifying a claim to the trustees within 5 years of the date of the establishment of the Scheme, they must be paid an amount equal to the value of their rights at the time of the extinguishment (ie the date of the Scheme). This provision for settling claims should be included unless it is clear that the beneficiary’s claim is statute-barred.
	The most effective, and therefore the preferred method of providing against a successful claim from a beneficiary, is insurance. Trustees should be encouraged to obtain suitable cover. However, if insurance is not available or practical, for whatever reason, the requirements of the Act may be satisfied by other means; see section 3.

	2.3 Model clauses
	Model clauses for inclusion in the Scheme comprise:
	an "extinguishment of rights" clause to extinguish the rights of any beneficiary; for example:
		"the rights of the beneficiary or beneficiaries under the trust arising in relation to the property under section 1 of the Act are extinguished by this Scheme".
	an "administration" clause (which may vary from case to case);
	a "provision for claims" clause to protect the rights of any beneficiaries and to ensure that the trustees make adequate provision for any payment required; for example:
			"If any person:
		(1)		but for the making of this Scheme, would be a beneficiary under the trust arising in relation to the property under section 1 of the Act; and
		(2)		has not consented to the establishment of this Scheme; and
		(3)		notifies his or her claim to the trustees within five years after the date of this Scheme;
		the trustees must pay to him or her an amount equal to his or her rights under such a trust at the date of this Scheme".
	alternative clauses covering:
			"use of property"
			"purchase of insurance" – "the trustees must (out of the property of the charity) effect a suitable policy of insurance to secure the payment of any such sum required to be made as specified in the "provision of claims" clause above" (if appropriate – see section 3);
			"sale" and "proceeds of sale" (these should be included only where the trustees make a case for being granted a power of sale);
			"expenses of management"; and
			"application of income".
	We can include any other provisions which we could offer if the Scheme were being made under the Charities Act 1993. The Scheme must be made under the Reverter of Sites Act 1987, and it should refer to "property" or "former charity" rather than charity in the shoulder note and title. The form of title is likely to be a variant of:
	"In the matter of the property consisting of [the proceeds of the sale of] the former [#Church of England School/School House at #] in the County of # [representing part of the property] comprised in a conveyance dated #; and
	In the matter of the Reverter of Sites Act 1987"; and
	The introductory clause should be amended to:
	"THE CHARITY COMMISSIONERS FOR ENGLAND AND WALES Under the power given in the Reverter of Sites Act 1987 order that from today, the [day - month - year] the following Scheme will govern the above-mentioned [property] [former charity]:-".

3. Insurance against claims
	3.1 Our duty 3.2 Property to be sold 3.3 Property to be retained 3.4 Inadequate directions in Scheme 3.5 Trustees fail to comply with directions

	3.1 Our duty
	Trustees may contend that they are unable to obtain insurance against a successful claim from a beneficiary.
	The Order is required under s.2(4) of the 1987 Act to secure that beneficiaries are paid the value of their rights at the time of their extinguishment, namely, the date of the Scheme.
	We usually achieve this by requiring the trustees to purchase suitable insurance. But, there are, in exceptional circumstances, other options. Section 3.3 sets out some options to consider if the trustees cannot be persuaded to buy such insurance.

	3.2 Property to be sold
	If at the date of the Scheme the trustees have already sold the property under their 1996 Act powers, and the trustees are unwilling to accept an insurance direction, the Scheme should direct that the net proceeds of sale, and any income derived from the investment of the proceeds of sale up to the date of the Scheme, should be set aside by the trustees for the 5 year period to meet any possible claim.
	If the intention at the date of the Scheme is to sell the property, and the trustees are unwilling to accept an insurance direction, the Scheme should contain a direction for a sale so soon as is reasonably practicable, and a direction for the net proceeds of sale, together with any income obtained from the use of the property before sale, to be retained for the 5 year period to meet any possible claim.
	Trustees should be aware that unless the revertee is immediately identified as a charity, they may be liable for Capital Gains Tax. See OG 27 D1.

	3.3 Property to be retained
	If neither the insurance nor the set aside option is practicable, an alternative may be to direct that any possible liability of the beneficiary should be secured by a guarantee, eg from a local authority. This option will involve an assessment of the credit of the proposed guarantor. Another option, if the property is to be retained, is to direct the trustees to create a charge over the property to secure the possible liability, but there is a risk here that the eventual creation of a charge over the other assets of the charity as well. These proposals, or any other proposal, for the form of the direction to secure the possible liability to the beneficiary should be referred to Legal Division.
	If Legal Division are satisfied that the trustees’ proposals are adequate, approval of the trustees’ proposals should be given by letter signed by an officer of at least Pay Band 5 level who has been appointed an Assistant Commissioner. This must be done before a Scheme is made.
	Where the land is appropriated under our Scheme for functional purposes, a power of sale should be granted to the trustees only if they can:
	make out a case for it; and
	provide a satisfactory way of ensuring that there will be sufficient funds to meet any claim.
	If a power of sale is granted, and the land is sold, we may need:
	to ensure that the trustees continue to make suitable provision for any claim within 5 years of the making of the Scheme; and
	to consider if any new trusts are needed.

	3.4 Inadequate directions in Scheme
	If a Scheme does not contain adequate directions to ensure that any claim may be paid, we may have failed to carry out our statutory duty. If, in these circumstances, the charity did not have enough money to meet a beneficiary’s claim, we could be liable for the shortfall. If the value of the charity’s property or investments had fallen sharply, this could be substantial. Any claim for compensation ("financial redress") will need to be dealt with in accordance with our normal procedures for this.

	3.5 Trustees fail to comply with directions
	If the directions in the Scheme are adequate, but the trustees fail to comply with them, the trustees will be in breach of trust. They will be personally liable to the beneficiary for any loss which this causes.

4. Public notice before and after making a Scheme
	Just as the trustees have a statutory duty to publicise their intention to apply to us for a Scheme (see section 1.2), we also have a statutory duty to give notice of what we intend to include in a Scheme, and if we do make one, notice that we have done so.
	4.1 Our proposals 4.2 Established Scheme 4.3 Right of appeal

	4.1 Our proposals
	Public notice of our proposals must be given as laid down in s.2(5)(c) of the 1987 Act. Any such notice must refer to the 1987 Act and not to the Charities Act 1993. This must invite representations to be made to us within a specified period ending not less than a month after the date of giving notice. Any representation received (and not withdrawn) must be taken into account by us when making the Scheme.
	If, as will usually be the case, the former charity was a local one, it will generally be sufficient to ask the correspondent to display two notices for a period of one month in the locality concerned.
	If the former charity had a wider area of benefit, or is of particular interest to the public, consideration should be given to requiring that a notice be placed also in a local newspaper.
	If, which would be quite exceptional, the former charity had an unrestricted area of benefit and operates on a national scale, a notice should be required to be published once in a national newspaper.

	4.2 Established Scheme
	Public notice of the establishment of the Scheme must be given as laid down in s.4(1) of the 1987 Act. Any such notice must refer to the 1987 Act and not to the Charities Act 1993. This must be in a manner considered sufficient and appropriate by us. Generally, publication by notice board only, for a period of one month, will meet both of these requirements. Only in the case of a national charity, or a charity with an extensive area of benefit, should it be necessary for the notice to be placed in a newspaper or other publication.
	A copy of the Scheme must, for a month after the date of giving notice, be available for public inspection at our office and at some convenient place in the locality where the land is situated.

	4.3 Right of appeal
	There is a right of appeal to the High Court against the establishment of the Scheme by:
	the Attorney-General;
	the trustees of the trust established by the Scheme;
	a beneficiary of, or the trustees of, the statutory trust;
	any person interested in the purposes for which the land was held before the trust arose;
	any two or more inhabitants of the locality where the land is situated;
	any other person who is or may be affected by the scheme.
	Any such appeal, unless made by the Attorney-General, must be made:
	within the period of three months beginning with the day following the date on which the public notice of the establishment of the Scheme is given;
	And with either:
	a certificate from us that it is a proper case for appeal; or
	if such a certificate has been refused, with the leave of the High Court.
	If you are dealing with a case which involves an appeal to the Courts against the Scheme, refer the case to Legal Division.

Glossary of Terms used in this Guidance
	1993 Act
	2006 Act
	Charity trustees
	Court
	Cy-près
	Land
	Order
	Permanent endowment
	Scheme
	Statutory declaration

Index to further related information