On 24 February 2022, the Charities Act 2022 received Royal Assent. The Act aims to tackle technical issues in charity law, provide greater flexibility to charities to amend their governing documents, and to deal with their funds and assets. The Act will have a staggered introduction until autumn 2023, with some areas of change needing further guidance from the Charity Commission.
The changes for charities to note include:
Disposal of charity land
A broader pool of people will be able to provide charities with advice on the disposal of charity land. The advisor will just need to be a “designated advisor”, which includes qualified trustees, officers, and appropriate employees. External advice and a report from a RICS-qualified surveyor will no longer be mandatory. This is because the requirements for the usual report have been simplified, which enables a larger range of people with appropriate experience and expertise to produce these. Following implementation of the 2022 Act, the report needs to cover the price, marketing requirements, advice on how to increase value of that land and success of the disposal, and any other relevant factors that the trustee should consider.
Moving forward, it will no longer be compulsory for trustees to advertise proposed dispositions, unless otherwise directed by the designated advisor. This will make the process of disposal much quicker and allow trustees to focus on the disposal itself. Along with greater flexibility, and fewer obligations, trustees will benefit from being able to appoint an advisor who may be less expensive.
A greater choice of professional advisors can be overwhelming and so it would be beneficial for charities to start considering an appointment process as soon as it is acknowledged that professional advice is required, so that thorough consideration can be given when choosing a designated advisor.
More detailed information is available here
Universities and colleges
The Law Commission’s report, ‘Technical Issues in Charity Law’ also amended a provision in the Universities and College Act 1925. Universities and colleges which operate under the Charities Act 2022 will operate with the powers of an absolute owner over the land on which they operate. This means that they will be armed with a much simpler land transaction power. This right is subject to statutory, equity and common law restrictions, as well as the restrictions in the charity’s governing document, so legal advice at an early stage is still recommended
The relevant institutions will be able to dispose of or mortgage their property without ministerial consent. The Law Commission has made the amendment to reduce the administrative burden on organisations which exist for the benefit of the community.
Both universities and colleges should start updating their existing guides and documents for land transactions, as well as reviewing their governing documents to check whether any clauses could interrupt their new general power. It would also be beneficial for the relevant universities and colleges to revise the Part 7 requirements, as compliance with this, alongside exercising the general power, will vary depending on the type of institution.
The Act will allow for donations received to be transferred to similar projects, which aim to reach a similar charitable purpose without the charity having to apply for a cy-près scheme. This can be done where there is initial failure of an appeal if there are surplus funds, or the original project is no longer going ahead. The purpose must also be suitable for the social and economic circumstances at the time of transfer.
The donation can only be transferred if:
- the donor is unidentifiable or cannot be found
- the donation is £120 or less in a financial year
- it would be unreasonable to incur expense to return the donation.
The Act also removes donors’ rights to make a claim for the return of their donation if the charity has decided to apply the proceeds of a failed appeal elsewhere and the above requirements are met. To prevent claims, it will be sensible to make donors aware of this during fundraising events.
The Commission will hold the power to uphold the election of a trustee if there is doubt and uncertainty around the appointment. This expansion of the law is useful if the correct procedure to appoint a trustee has not been complied with entirely, or if there is a dispute surrounding the appointment of a trustee.
Also, under the current law, trustees could only be paid for a service provided to their charity if certain conditions were met under the 2011 Act, and either the governing document allowed the payment, or the Commission approved it. Following implementation of the 2022 Act, trustees or connected persons may be paid for both services and goods provided to the charity.
Similarly, the Commission will be able to authorise a trustee to retain any otherwise unauthorised benefits received from their charity for their work with the charity, provided that the Commission deems it unjust for the trustee not to be remunerated. Previously, authorisation from the Commission or the court was required for retrospective authorisation for a trustee to keep any such benefits, and this was not easy to obtain.
Borrowing and investing permanent endowment funds
A permanent endowment fund is one that has been established to provide a long-term source of income. The Act will allow for charities to borrow from the permanent endowment, without consent from the Commission. However, the value of the endowment fund will not change. When calculating the value of the permanent endowment fund, trustees are to include any amount borrowed in this figure. Other limitations on the amount that can be borrowed include:
- Trustees can borrow up to 25% of the market value of its permanent endowment without consent from the Commission, so long as it is repaid within 20 years. Consent will still be required where the market value of the endowment exceeds £25,000, or a trustee would like to borrow more than 25% of the value.
- Social investments with an uncertain financial return will be permissible in the future, but the Commission needs to create new regulations before this power is exercised by trustees.
Unincorporated charities will be able to amend their governing documents, by resolution of the trustees, without consent from the Commission. This is unless the amendment relates to the legal objects of a charity, trustee benefit provisions and the dissolution clause.
The Act aligns the process to make changes to governing documents for unincorporated charities with incorporated charities and charitable companies. The process to make general changes will become much more straightforward, despite the lack of an express power. This reflects the theme of the Act which is to empower trustees with greater control whilst managing a charity.
The procedure for altering governing documents for charities established by statute or the Royal Charter will also become less cumbersome. Currently there is a single procedure for all amendments. The alterations must be approved by Parliament or the Privy Council.
Trustees of Royal Charter charities which do not have an express power of amendment in their Charters will be granted a statutory power to amend their Charters, subject to consent from the Privy Council. The amendment will take effect on the date on which the Privy Council consents to the amendment, or a later date if the resolution directs this. Trustees must still obtain approval from the Council before the amendment is put to a vote.
This update in law avoids the need to obtain a Supplemental Charter and should make the process less costly and time-consuming. These changes do not impact Royal Charter charities which already have an express power of amendment.
Amending your objects
Minor changes to a charity’s objects clause, which do not affect the substantive meaning of the clause, will not require approval from the Commission as they will not be considered ‘regulated alterations’. This will be a matter of judgment for trustees and their advisers, and it will be interesting to see how broadly this will be applied.
The 2022 Act aims to standardise the test for consent to objects changes across all types of charities. This uniformity is beneficial as it provides certainty and clarity on the test to be used. Under the new statutory test, the Commission will now consider:
- the purposes of the charity when it was established, if and so far as they are reasonably ascertainable
- the desirability of securing that the purposes of the charity are, so far as reasonably practicable, similar to the purposes being altered
- the need for the charity to have purposes which are suitable and effective in the light of current social and economic circumstances.
Previously, unincorporated charities relied on a rational argument to make a change, whereas now they must shape their new legal objects to be as close to the purposes of the charity when it was initially established. Arguably, the Act has increased the burden for the smaller unincorporated charities when it comes to amending their purposes. With the Commission having more specific factors to consider when deciding on major changes to legal objects, amending a charity’s purposes will naturally take longer, and is potentially becoming a weightier process.
Ex gratia payments
Ex gratia payments or gifts are those given voluntarily by a charity, where there is no legal obligation to make a payment, but where the trustees feel morally obliged to do so.
Smaller ex gratia payments will no longer need consent from the Charity Commission. “Small” is measured by the charity’s gross income in the last financial year. Please see the table below for further guidance.
|Gross income in the last financial year||Amount that can be paid as an ex-gratia payment without consent|
|Up to £25,000||£1,000|
|£25,000 or above||£2,500|
|£1,000,000 or above||£20,000|
Payments exceeding the amounts listed above can only be made with consent from the Attorney General, the Court, or the Commission.
Under a new statutory power inserted into the 2011 Act, section 331A will allow trustees to make ex-gratia payments, when they can “reasonably be regarded” as being under a moral obligation to take the action. This makes the test an objective one, rather than a subjective one. Thus, trustees can now delegate the decision to other members in their team to make ex-gratia payments. However, it is important to note that the trustee retain accountability for the decision made.
Under the current legislation, section 311 of the 2011 Act states that only if a merger is registered with the Charity Commission, will a gift to a former charity automatically take effect to a newly merged entity. However, the register cannot provide certainty that all potential gifts and legacies will be transferred over to a newly merged charity, particularly as the wording in a will can prevent the gift or legacy from passing over, as seen in Berry and another IBS-STL (UK) Ltd and another  EWHC 666 (Ch).
Gifts and legacies given to charities which no longer exist in the form in which they did when the legacy was first envisaged will now automatically be deemed to have been given to the new charity.
Name of a charity
The new legislation equips the Charity Commission with the power to direct charities to change their names, both working and legal. They no longer need to make the direction within the first 12 months of registration. This power has been expanded to prevent charities registering with names which are misleading, offensive, or names which are too similar to another charity.
If such a direction is made by the Commission, charitable companies can now change their name by a directors’ resolution. Previously, a members’ resolution was required. This is beneficial as it will make the process in-house quicker.
To summarise, the Law Commission has updated legislation on charity law to reduce the administrative burdens for charities, and on the face of it ,to enable charities to have more time and money to pursue their legal objects. Additionally, these changes and the greater flexibility surrounding the governing documents equip charities to amend their organisation to meet the needs of the future. The new legislation also seems hugely beneficial for trustees, as they will be remunerated for the goods and services they provide, and various provisions have been inserted into the Act to provide trustees with greater autonomy. It also seems that the role of the Commission has in some respects been reduced and it is hoped that this will mean that the resources of the Commission will be less stretched in responding to the many applications and enquiries it receives.