Most trustees know that selling trust property needs the Charity Commissioner’s sanction. Leasing is where the rule is misunderstood, because a short lease does not need sanction and a slightly longer one does — and the dividing line depends on what kind of property it is.
Key facts
- Law
- Section 36, Maharashtra Public Trusts Act: prior sanction of the Charity Commissioner
- Agricultural land
- Lease of more than 10 years needs sanction
- Buildings and non-agricultural land
- Lease of more than 3 years needs sanction (including a five-year leave and licence)
- Outer limit
- The Charity Commissioner should not sanction a lease longer than 30 years
- Without sanction
- The transaction can be invalid; sanction afterwards (Section 36(5)) is only for exceptional cases
The rule in Section 36
Section 36 of the Maharashtra Public Trusts Act, 1950 provides that no sale, exchange or gift of immovable property of a public trust is valid without the previous sanction of the Charity Commissioner. For leases, the section draws a distinction:
- for agricultural land, a lease for a period exceeding ten years requires sanction;
- for non-agricultural land or a building, a lease for a period exceeding three years requires sanction.
There is also an outer limit on what can be sanctioned at all: the Charity Commissioner is not to sanction a lease for a period exceeding thirty years.
Why the three-year line catches people out
A trust that owns a building in Mumbai and lets a shop or a hall on a five-year leave and licence arrangement is squarely within the sanction requirement, and this is very frequently missed. So is the trust that renews a three-year arrangement repeatedly with the same occupant on terms that, taken together, look like a much longer tenure. The label on the document does not decide the question; the substance of the arrangement does. Trustees who structure a long occupation as a series of short renewals specifically to stay under the line should expect that to be examined if it ever comes before the office or a court.
“Previous” sanction means previous
The requirement is for prior sanction. An agreement signed first and taken for approval afterwards is not the same thing, and the consequences for validity are serious. This is the single most expensive mistake in this area: a purchaser or lessee who has paid money under a transaction that was never sanctioned, and a trust that has parted with possession, are both in a difficult position, and unwinding it is slow.
Sanction after the event
The Maharashtra Public Trusts (Second Amendment) Act, 2017 introduced a provision — Section 36(5) — allowing sanction to be granted after the transfer in exceptional and extraordinary situations, subject to a set of stringent conditions, and confined to transfers after a specified date in October 2017. It is a narrow and conditional remedy, not a routine second chance, and it should not be relied on when planning a transaction. The right approach remains to apply before the trust commits itself.
What the office looks at
An application under Section 36 is decided in the interest of the trust. In practice the office tends to examine:
- why the transaction is necessary or beneficial for the trust;
- whether the consideration or rent is fair, usually supported by a valuation;
- how the property was marketed, and whether better terms could have been obtained;
- what will be done with the proceeds — a sale that funds the trust’s objects reads very differently from one that merely closes a gap in running costs;
- whether the trustees have a personal interest in the transaction or in the counterparty;
- whether the register entries and the trust’s annual filings are in order.
That last point is worth planning around. A trust that has not filed its accounts, or whose change reports are years behind, will usually find those questions raised before the merits of the transaction are reached. Cleaning up the file first is often the fastest way to get a sanction application moving.
Practical sequence
Broadly: establish the trust’s title and the exact extent of the property; get a proper valuation; settle the commercial terms subject to sanction; put the trust’s compliance in order; then apply, disclosing the terms fully. Any agreement signed in the meantime should be expressly conditional on sanction being granted. More detail on the application itself is on the Section 36 page.
This note sets out general information about procedure under the Maharashtra Public Trusts Act, 1950. It is not legal advice, and the position in any particular matter depends on its own facts and on the law as it stands at the time. Statutory references should be checked against the current text of the Act and Rules.