Charity Law Update New Charities Bill special edition July 2021 rollits.com
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Charity Law
Update New Charities Bill
special edition
July 2021
rollits.com
2 Charity Law Update July 2021 New Charities Bill proposes to reduce burden of charity regulation On 11 May 2021 the Queen announced an important piece of legislation for the charity sector as the Government’s plans to roll out the Charities Bill. In 2017 the Law Commission published a report ‘Technical Issues in Charity Law’ setting out problems in the legal sphere in which charities operate and making recommendations for improvements. The Report noted that much of charities’ time and funds are spent satisfying administrative legal burdens, rather than on their intended charitable causes. Annexed to the report was a draft Bill, designed to give legal effect to the Commission’s proposed amendments. Following delays, caused by Brexit and the pandemic, the Government issued a response to the Law Commission’s report in March this year accepting the majority of the recommendations made. The Queen’s speech confirmed that subject to Parliamentary approval, the Charities Bill will be implemented with the purpose of addressing “a range of issues in charity law which hamper charities’ day to day activities,” as identified in the Commission’s 2017 report.
July 2021 Charity Law Update 3
What is the Charities Bill
intended to achieve?
The aim of the Bill is to: • Help charities consolidate and
restructure by simplifying legal
• Remove the unnecessary administrative
processes which will reduce costs
and financial burdens that charities
and save time; and
currently face because of the ‘inefficient
and unduly complex’ laws that they are • Rebalance the regulations by enabling
governed by; trustees to run charities effectively,
whilst ensuring that there is proper
•M
ake the regulation surrounding
oversight which safeguards the public
charities more effective, and make
interest; and
the legal framework easier to
navigate, enabling charities to use • Ensure that the law works better for
their resources effectively to promote the entire sector.
their charitable causes;
Continues on next page…
4 Charity Law Update July 2021 New Charities Bill proposes to reduce burden of charity regulation (continued) What changes will the Bill implement to charity law if it is passed through Parliament?
July 2021 Charity Law Update 5
1. Governing documents
Changes will be introduced to make The three-part test to be considered by
it easier for charities to change their The Charity Commission in considering
governing documents, including whether to consent to regulated
streamlining the process by which alterations are that the Commission
charities with Royal Charters can get must have regard to:
Privy Council approval. • The charity’s purposes when it
was established;
Confusion is currently created by
differences in how unincorporated • Whether it is desirable to keep the
charities (e.g. trusts and unincorporated purposes similar to those being
associations) and incorporated charities altered; and
(e.g. companies and Charitable • The need for the charity to have
Incorporated Organisations) may purposes which are suitable and
amend their governing documents effective in the light of current social
and in particular, seek consent and economic circumstances.
of The Charity Commission to
regulated alterations. The Bill aims Unincorporated charities would still
to put unincorporated charities and be required to seek The Charity
incorporated charities on a similar Commission’s consent to:
footing to reduce disparity and to
clarify the legal procedures. • any changes relating to the manner in
which the charity uses or deals with its
If the Bill is enacted, The Charity permanent endowment assets; or
Commission will consider the same • changes to the rights of third parties
three-part test when considering (e.g. to nominate and appoint trustees)
giving consent to regulated changes if such third parties are still in existence
to charities’ governing documents. at the time the charity is looking to
Regulated changes are: change its governing document.
• Changes which would alter the Continues on next page…
charity’s purposes;
• Changes to the charity’s dissolution
provisions; and
• Changes which would authorise
benefits to be obtained by the
charity’s trustees or members or
people connected with them.
6 Charity Law Update July 2021
New Charities Bill proposes to reduce burden of charity regulation
(continued)
2. Charity mergers Amendments to the Register of Merger
provisions are designed to address
There will be a removal of legal barriers
this and to make the operation of the
to charities merging, when a merger is
Register of Mergers more effective in the
in their best interests.
circumstances, and to eliminate the need
The Bill proposes to amend the to maintain dormant charities.
provisions in the Charities Act 2011 in
relation to The Charity Commission’s 3. Ex gratia payments
Register of Mergers. The Register of If the Bill is enacted in its current form,
Mergers is intended to protect legacy charity trustees will be allowed to
income to charities that have merged make small ex gratia payments without
with another charity and have since been the prior authorisation of The Charity
dissolved or incorporated and have been Commission. Occasionally charity
removed from The Charity Commission’s trustees need to consider making ex
Register. The Register of Mergers was gratia payments. Ex gratia payments
introduced to stop legacy income “falling are payments which the charity is not
through the net” if the beneficiary charity under any legal obligation to make
has dissolved when the merger takes and which are not necessarily in the
effect and has transferred its assets and best interests of the charity, but where
operations to another charity (whether as the charity’s trustees believe there is a
the result of a merger or incorporation). moral obligation or imperative to make
a payment.
As currently drafted the provisions are
not completely fool proof and some Examples of ex gratia payments could
legacy income may still fail to take effect include the charity waiving rights to
to the merged charity if it is unclear money or property to which it is legally
whether the testator intended their entitled but has not yet received,
gift to support that charity specifically circumstances where legacies have
or its charitable purposes in general. been left to charities under someone’s
Confusion over whether the Register Will, but there is clear evidence that the
of Mergers would be sufficient to testator may have wished to change
protect legacy income post-merger or this, but it was not possible before their
incorporation, and dissolution of the death or if there are doubts about the
transferring charity often leads charities testator’s ownership of the assets gifted
to retain the transferring charity as a to charities.
dormant charity on the Register to
ensure that future legacy income does Provided they are in the charity’s interests,
not fall through the net. However, this occasional small gifts that are not of
can be an administrative burden and it significant value (e.g. token gifts for
can cause confusion. retiring trustees) are not considered ex
gratia payments. Ex gratia payments
go above and beyond small gifts for
volunteers or retiring trustees that are not
of significant value.
July 2021 Charity Law Update 7
The Bill would alter the existing quickly to situations where they feel
legislation so that charities have the there is a moral obligation for the charity
authority to make ex gratia payments to make an ex gratia payment. However,
without the authority of The Charity these powers should be exercised
Commission provided the value of such cautiously; particularly in view of the
payments does not exceed the relevant charity’s reputation and perception/
thresholds set down in the Bill which opinion about whether something is
are based upon the charity’s gross in the charity’s interests is subjective. If
annual income. these powers become available, charity
trustees using them should be prepared
For example; if a charity’s gross income to explain the rationale for making their
in its last financial year did not exceed decisions and to justify why making
£25,000, the relevant threshold would an ex gratia payment is in the charity’s
be £1,000. At the other end of the scale, best interests. Careful decision making
if the charity’s gross income in its last and Minutes documenting the decision
financial year exceeded £1 million, the making process would be required, and
relevant threshold would be £20,000. managing any conflicts of interest would
also be essential.
It can take several weeks to obtain The
Charity Commission’s consent to make Continues on next page…
ex gratia payments and an advantage
if these powers are introduced would
be to enable charity trustees to react
8 Charity Law Update July 2021
New Charities Bill proposes to reduce burden of charity regulation
(continued)
4. Disposal of charity land The Bill also simplifies the contents
of the written report, so that this
The Bill proposes to simplify the law
would consider:
around the disposal of charity land
and to make it easier for charities to • The market value of the land;
secure the advice required to do so. • Any improvements that would
This change could save charities both improve the market value/price;
time and funds because the current
provisions are a common source of • Any marketing the adviser would
aggravation for charity trustees. recommend; and
• Any other recommendation relevant
A source of frustration for charity to the transaction.
trustees are the requirements under the
Charities Act 2011 to engage a RICS Anyone advising the charity and
qualified surveyor to prepare written preparing the report would be required
report advising the trustees when the to self-certify that they have the relevant
charity is disposing of charity land. In knowledge and expertise and that they
circumstances when the transaction do not have a conflict of interest in
is relatively low value, but is caught relation to the transaction.
by the land disposal provisions the
cost of obtaining such a report can be These changes will be very welcome
disproportionate. Where time is of the to charities holding land and should
essence in charity land transactions address some of the problems and
there may not be time to obtain an disproportionate costs and delays
Order from The Charity Commission that have been experienced by
authorising the disposal if the costs charity trustees in complying with
of obtaining a surveyor’s report are the current procedures.
disproportionate either.
The Bill proposes to address this
by making changes to the range of
professionals that charity trustees can
obtain the written report from. This would
be expanded to include Fellows of the
National Association of Estate Agents
and Fellows of the Central Association
of Agricultural Valuers. Furthermore,
if a charity has a suitably qualified
person from amongst the trustees or its
employees they can also provide the
advice if they are in a position to do so,
and provided there would be no conflict
of interest.July 2021 Charity Law Update 9
5. Failed fundraising appeals 7. Payment of charity trustees
The Bill, if enacted, would allow The Bill, if enacted, would introduce
charities to keep small donations below an express power for charity trustees
£120 when a fundraising appeal fails to to be paid for goods supplied
reach its target or achieves a surplus to the charity by them in certain
without having to contact the donor circumstances, even if not expressly
for their approval. Charities would also stated in the charity’s governing
be able to spend small donations on document. This would give charities
similar charitable purposes without greater flexibility to source goods from
needing to contact individual donors their trustees or connected parties
for permission or seeking a Scheme when it is in the best interests of the
from The Charity Commission. charity to do so (e.g. if it is more cost-
effective), without needing The Charity
6. Use of permanent endowment Commission’s permission.
The Bill proposes to implement
measures to give charities increased
8. Trust corporation status for
flexibility to use their permanent sole corporate trustees of
endowment. Permanent endowment charitable trusts
is assets or investments where the Some unincorporated charities
capital value must be preserved and have incorporated trustees and if an
the income only, and not the capital can incorporated charity has permanent
be spent. Charity trustees can find the endowment assets, these assets must
current regime very restrictive and the be held on separate charitable trust.
Bill proposes to give charity trustees
power to act more flexibly to react to Charities with sole corporate trustees
changing circumstances. require that trustee to have trust
corporation status so that it can deal
The Bill also includes changes which with the charity’s assets.
would allow charity trustees to borrow
a sum of up to 25% of the value of their The Bill, if enacted, will bestow trust
permanent endowment funds, without corporation status automatically on all
The Charity Commission’s prior approval, sole corporate trustees of charitable
and subject to repayment conditions. trusts. This is a technical requirement,
but an important one and would remove
the administrative burden of having to
apply to The Charity Commission for a
Scheme to obtain this status or to the
Ministry of Justice for a Certificate to act
as a trust corporation.
Continues on next page…10 Charity Law Update July 2021
New Charities Bill proposes to reduce burden of charity regulation
(continued)
Is there anything the Bill does
not currently include?
Not all of the Law Commissions between charities and non-charities
recommendations have been accepted should continue to operate on an
by the Government and some of the arms-length basis.
measures suggested to further reduce
• The Government have also rejected
the administrative burden on charities
the Law Commission’s suggestion to
have not made the cut to be included in
abolish the requirement for charity
the Bill. Some examples include:
trustees to give public notice of sales of
• Under current legislation if a charity charities’ designated land. ‘Designated
wishes lease or sell land to a trading land’ is land that charities are obliged to
subsidiary, it needs a court order or an use for specific purposes. This was on
order from The Charity Commission the basis that designated land is often
because the trading subsidiary is an important asset to the community
classed as a “connected person”. The and commonly takes the form of
Government has turned down the Law community and recreation grounds,
Commission’s recommendation that halls, schools and church property;
these transactions should be made therefore the Government deemed that
possible without an Order from the public notice of sale should continue to
court or The Charity Commission. be given.
This was on the basis that relationshipJuly 2021 Charity Law Update 11 Timetable: when will the Bill become law? The Government has asked the Law Commission to update the Bill that they drafted to accompany their 2017 report and following the announcement in the Queen’s speech it is expected that subject to Parliamentary approval the Bill will be introduced in the current Parliamentary session. If you have any queries on any issues raised in this newsletter, or any charity matters in general please contact Gerry Morrison on 01482 337339 or email gerry.morrison@rollits.com
12 Charity Law Update July 2021
The Rollits Charities team
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Information The law is stated as at 16 July 2021.
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