On 14 September the Law Commission published its final report on technical issues in charity law (including a draft Bill), concluding a project that began in 2013 in the wake of Lord Hodgson’s review of the Charities Act in 2012.
The Law Commission’s project began because it had been identified by Lord Hodgson, during his review of the Charities Act, that charity law contains a number of burdensome complexities, uncertainties and disproportionate burdens on those involved in the administration of charities, resulting in unnecessary time and money being spent by charities, which could be better applied towards their charitable activities.
There is clearly an important and delicate balance to be struck between protecting public trust and confidence in charities with appropriate safeguards, and relaxing and simplifying the law to maximise the efficient use of charitable funds. The consultation was, therefore, lengthy and complex and this is reflected in the final report, which means that for many people it is simply too long and technical to be easily digestible. However, as Lord Hodgson comments “although its recommendations may appear to be highly technical, cumulatively I believe they would have a huge impact on the sector, helping trustees to work effectively in modern-day conditions.” Despite the complex nature of the report, it is of huge importance to the charity sector.
The report makes 43 recommendations. However, this article focuses on just two of the key recommendations, which we consider will be important for many charities:
- amending governing documents
- disposal of charity land
Amending governing documents
Regardless of the size, nature and age of a charity, there will inevitably be a need to update its governing document from time to time, for example to expand or limit trustees’ powers to meet changes in circumstances, to reflect changes in law, or to change administrative procedures. Additionally, charity trustees have a responsibility to ensure that the charity’s governing document remains fit for purpose; the Charity Commission states in its guidance on amending governing documents that “it is the duty of trustees to seek to change the governing document in order to ensure the charity’s continuing effectiveness.”
Given that this applies to all charities, you would be forgiven for imagining that the process to amend governing documents is straightforward and the same for all charities: it is not. In fact, it is decidedly complicated.
For example, although Charity Commission consent is required for changes to the objects of a charitable company or CIO, there is nothing in statute governing what the Commission must take into account in determining whether to approve a proposal, and in practice it is usually possible to obtain consent if you make a good enough case as to why it is in the charity’s best interests. Conversely, for most (other than very small) charitable trusts and other unincorporated charities, unless there is an express power permitting amendments to objects (which is relatively rare) a Charity Commission cy près scheme is needed, and the circumstances in which this is available are very narrow in comparison to the position for incorporated charities.
This is only one example of how the current law applies differently, depending on legal form, but it serves as an illustration of the complexities that currently apply.
The Law Commission has recommended that the regimes for amending the governing documents of corporate and unincorporated charities should, as far as possible, be aligned. A new statutory power has been proposed for unincorporated charities, which reflects the current legal position for incorporated charities: it will allow all unincorporated charities to make any changes they wish to their governing documents, other than specified alterations that will require the consent of the Charity Commission (e.g. amendments to objects). In addition, it is proposed to include a new statutory provision setting out the factors to be taken into account by the Charity Commission when considering whether or not to approve a change of objects by either an incorporated charity or an unincorporated charity.
If the proposals become law then what this means, in practice, that it might become more difficult for incorporated charities to make changes to their objects, but it will become easier for unincorporated charities to do so. However, there will be a level playing field: for both incorporated and unincorporated charities, the Charity Commission would need to have regard to the same factors in making a decision, namely: (a) the purposes of the charity when it was established; (b) the desirability of securing that the property is applied for charitable purposes which are close to the purposes being altered; and (c) the need for the relevant charity to have purposes which are suitable and effective in the light of current social and economic circumstances.
(N.B. None of the above applies to Royal Charter bodies, but there are other proposals included in the report regarding the simplification of the process to make amendments to Royal Charters).
Disposal of charity land
If you have ever been involved in selling land owned by your charity, you will be familiar with the requirements of Part 7 of the Charities Act 2011, which apply to any disposal of an interest in charity land (which is interpreted very widely and would include, for example, granting an easement over charity land).
The current regime is complex and considered by many to be unnecessarily burdensome. In particular, there is a requirement to obtain advice from a qualified surveyor (a member of the Royal Institution of Chartered Surveyors) before disposing of any interest in land, which in many cases is disproportionate in light of the value or nature of the disposition.
The Law Commission has made two key recommendations in relation to this: (a) simplification of the detailed advice requirements (see below); and (b) expanding the category of professionals who are permitted to provide advice to include Estate Agents and Agricultural Valuers, and (where suitably qualified) trustees or employees.
The Law Commission recommends that the advice to be provided in a qualified surveyor’s report should include (broadly): advice on the sum to expect or whether an offer represents market value, whether the value of the land could be enhanced and (if so) how, any recommendations for marketing, and anything else that could be done to ensure that the terms are the best that can reasonably be obtained for the charity. Also, it is proposed that the current requirement to advertise the proposed disposition in the manner advised by the surveyor should be removed.
There are a number of other recommendations to simplify the administrative burden when disposing of charity land, including that the persons signing the contract or conveyance may also give the required statutory certificate (the current regime requires this to be given by the trustees personally).
If the proposals become law, then it is estimated by the Law Commission that the reforms to provide increased flexibility concerning the sale of land will save £2.8m per year within the sector.
If you want to know more
It is beyond the scope of this article to look at all of the recommendations in detail, given the length and highly technical nature of the report. However, if you would like to know more and do not want to read all 484 pages, there is a helpful list of all of the recommendations in chapter 16 (starting on page 355). There is also a helpful summary and a mark-up of the Charities Act, which makes it easy to see how the recommendations will change the current law.