Charities have to use their funds and property to promote their charitable objects. Sometimes, however, it can seem fair to the trustees to make a payment which is not authorised by the governing document, and which the trustees are not legally obliged or permitted to make. These payments are known as “ex gratia” payments.
In order to make an “ex gratia” payment it is necessary to apply to the Charity Commission for authority. Often, such applications are made in respect of property left in a will; however this is not always the case.
The National Trust recently benefitted from the grant of such a Charity Commission authority. It had applied for the authority not to make a payment of money but to waive its entitlement to certain payments due from a number of tenants of properties it owned. As the charity was legally entitled to the money, the trustees were under a duty to claim it, and therefore the decision to waive the claim to the money was the same as if the charity had made an ex gratia payment. The same authority was required.
These properties had been let to the tenants under residential long leases and those tenants had the right to extend those leases under the Leasehold Reform Act 1967. However, other provisions of the legislation resulted in the modern ground rent payable to the National Trust in respect of these properties being considerably higher than the tenants had anticipated.
Although they were under no legal obligation to do so, the trustees felt morally obliged to waive the National Trust’s entitlement to a percentage of the modern ground rent, since the tenants had had no knowledge of the position and would have struggled to pay the increased rent. Accordingly, they applied to the Charity Commission for the authority to do this, which the Commission then granted.
This is just one example of circumstances where the Charity Commission can help trustees to act despite the fact that to do so, without the required authority, would be in breach of the charity’s governing document and not, strictly speaking, in the best interests of the charity.
While applications such as that made by the National Trust are relatively rare, the availability of this option to apply to the Charity Commission for authority is nevertheless encouraging in certain situations to produce, in the words of the Charity Commission, a “fair” and “moral” outcome.
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