Governance being made Easier?

Navigating a charity effectively through a maze of complicated rules and regulations can present obstacles and drain resource. At least that was the view of the Law Commission in its 2017 report, following an investigation into the various technical legal issues that many charities struggle to get to grips with.

Parliament responded with the Charities Act 2022, which is being introduced in stages. The first set of provisions came into force last October, including an extended power for charities to pay trustees and a reduction in the administrative complexities surrounding fundraising.

The second tranche of changes are due in the Spring although as yet, the exact date is unknown. Charities can, however, expect new rules on accessing permanent endowment, disposing of land and protecting charity names.

Permanent Endowment

Essentially, permanent endowment is capital (including land, buildings, cash or investments) that must be preserved.

In some cases, permanent endowment property must be used directly to further the charity's purposes (eg when you have a building held specifically to house a gallery or museum) and in other cases, to produce an income that can then be used to further the charity’s objects (this is known as an investment endowment).

The trustees cannot normally spend permanent endowment without the Charity Commission's authority. There are, however, some useful provisions currently available to smaller funds that offer a degree of access without involving the Commission.The conditions are:

  1. To amend the objects/purpose of the fund or to merge it -  the fund must have an income of £10,000 or less; and
  2. To release/spend the capital – the fund must either have an income of £1,000 or capital value of £10,000 or less.

The Charities Act 2022 will replace these provisions with new (simpler) criteria, that only requires Charity Commission consent for changes (all changes) if the capital value of the fund exceeds £25,000.

Although the simplification may be welcomed, not all charities will see this as a “win”. The existing rules are, for example, useful for large funds (in excess of £25,000) that generate a return of less than £1,000 a year. It may make sense for charities that fall into that category to review their endowments before the imminent change.

Charity Land

The rules and requirements that apply on disposals of charity land are being relaxed, which should be welcome news to many.

The current rules are very prescriptive, with the aim of ensuring charity land is sold on the best possible terms. While that may sound necessary and appropriate, the reality for charities making small value sales/transfers is that the complex advice required often proves to be disproportionate.

The rules are being simplified in three ways:

  1. A wider group of people (not just RICS qualified surveyors) can give advice, provided they are seen to have the requisite expertise;
  2. More flexibility will be introduced in terms of what the advice should cover; and
  3. There will be no prescribed advertising required.

For trustees it will be worth remembering that although the rules may lower the procedural bar, the expectation upon them (in terms of making the best possible deal for the charity) remains the same.They will therefore need to be confident they are exercising their extended discretion appropriately on a case by case basis,

Charity Names

Currently only the registered name of a charity is protected (ie it or similar variation of it cannot be used by another charity). A charity’s “working name” has no protection.

This creates an anomaly as in some cases, a charity may be better known for its working name than its actual name. Comic Relief, for example, is the working name of Charity Projects.

Under the new rules the working name of a charity will enjoy as much protection as the registered name.

Overall, however, registering a trademark may continue to be the best way to protect a charity name, rather than relying on an overworked regulator with a number of priorities to juggle.

The final group of changes will come into force in the Autumn, giving charities a chance to adjust to this new legal landscape slowly over a 12 month period.

Our content explained

Every piece of content we create is correct on the date it’s published but please don’t rely on it as legal advice. If you’d like to speak to us about your own legal requirements, please contact one of our expert lawyers.

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