The Charities Act 2022 became law at the end of February 2022. It seeks to implement most of the recommendations made by the Law Commission in its 2017 report “Technical Issues in Charity Law”. Implementation of the Act should save charities not only time but also expense.
In our previous briefing [Charities Bill Update June 25, 2021], we looked at the amendments which the Bill, when enacted, would make to charity law. In this briefing we look at some of the changes that we consider to be of the most practical use to our clients:
1) Acquisitions, disposals and mortgages of charity land
The intention is to make the existing regime less burdensome. For example:
Advertising and surveyor’s report requirements: The Act will remove the requirement for trustees to advertise a proposed disposition in the manner advised in the surveyor’s report (although trustees should still consider any such advice).
There will also be changes to the form and scope of the report which is required to be obtained in relation to disposals, to address criticisms of the current Charities (Qualified Surveyors’ Reports) Regulations 1992.
Advice – In addition, the category of those who can give advice to trustees on land disposals is expanded beyond “qualified surveyors” [See our previous note Charities Bill Update: Land Transactions posted on July 1 2021]. There will be an expanded category of advisers who will be able to self-certify that they have the appropriate expertise and experience. As a practical matter, when drawing from a wider pool of advisers, charities may want to consider the associated professional indemnity (PI) cover to ensure appropriate protection.
Qualified trustees, officers and employees will also be able to provide advice on dispositions, including where they do so in the course of their employment. However, until the position regarding their PI insurance is clearer, charities may prefer to rely on the advice of third party advisers.
Tenancies granted to employees – the definition of “connected person” is amended to exclude employees of a charity, such as wardens, where the disposal is the grant of a short, fixed-term or periodic tenancy (of one year or less) to use as their home. This useful change means that while trustees will still need to obtain advice on granting these tenancies, the consent of the Commission will no longer be required. However, the consent requirement will remain for other categories of “connected person” such as subsidiaries of charities.
Drafting mortgages and other land disposal documents – there will be an additional statement that the trustees have complied with requirements of Part 7 of the 2011 Act in the contract for a disposition or mortgage of charity land. As a result, standard documents will need to be reviewed to ensure compliance with the new drafting rules.
2) Amending governing documents and unlocking restricted funds
The Act will simplify the process of amending governing documents, most notably for unincorporated charities, although Commission consent will be still be required for ‘regulated alterations’, such as changes to provisions relating to the distribution of assets on dissolution. For charitable companies, Commission consent will no longer be required to minor changes to the charity’s objects, provided such changes do not amend the objects’ substance.
It will also be simpler for charities to unlock lower value restricted funds where the purpose of the fund can no longer be achieved, without needing to seek Commission consent.
3) Ex-gratia payments
Charities currently have to obtain authority from the Commission, the Court or the Attorney General if they wish to make a payment out of their charity’s funds which they feel morally (but are not legally) obliged to make (an ‘ex-gratia payment’). The Act gives trustees a new power to make small ex-gratia payments without requiring authorisation, with financial limits relative to the gross income of the charity (e.g. £20,000 for a charity with a gross income of over £1million). Trustees may delegate decision-making on ex-gratia payments; however, overall responsibility remains with the trustees.
4) Charity trustees
The Act contains various provisions relating to charity trustees including around benefits. For example, the Commission is given a power to order a charity to remunerate a trustee for work carried out for, or on behalf of, the charity (or to authorise them to keep any unauthorised benefit already received), where the Commission considers it would otherwise be inequitable for them not to be paid or to retain the benefit. This means that, for example, a trustee who is a specialist and applies that knowledge to save the charity a substantial sum, can be remunerated for that work. There is no longer a need to apply to Court to authorise these benefits.
5) Permanent endowment
The Act makes welcome changes in relation to permanent endowment, which refers to a charity’s funds which are subject to a restriction on how the capital may be expended. A number of housing associations, and in particular almshouses, will have permanent endowment assets. The Act introduces a new ability for charities to borrow from permanent endowment without obtaining Commission consent and also widens the power to spend from permanent endowment.
The 41 clauses of the Act will come into force in stages, over the next 12 -24 months, and will be accompanied by update guidance notes from the Commission.