The Charities Act 2022 — key changes for trustees and their advisors

In response to the Law Commission’s 2017 report, ‘Technical issues in charity law’, the Charities Act 2022 (‘the 2022 Act’) has sought to ‘make a positive, practical difference to charities and the Commission as regulator’. While not all the recommendations have been implemented, here we set out some of the key changes for trustees and their advisors to note in the upcoming months. The legislation will come into force in increments, over autumn 2022, spring 2023, and autumn 2023.

Selling charitable land

S.117- S.121 of The Charities Act 2011 provide a self-certification process for trustees to sell charitable land without obtaining consent from the Charity Commission. The criteria ensure that trustees act in the best interests of the charity and obtain the highest agreed price for the land.

When disposing of charitable land (save for a lease of less than 7 years) S.119 of the Charities Act 2011 requires the trustees to obtain and consider a written report on the proposed sale by a RICS qualified surveyor. The report is required to advise on nine factors, set out in the Charities (Qualified Surveyors’ Reports) Regulations 1992.

In an effort to make the process more flexible for trustees, the 2022 Act has widened its definition of ‘qualified surveyor’, to ‘designated advisor’. This new definition will include fellows of the National Association of Estate Agents and the Central Association of Agricultural Valuers.

Furthermore, the report itself will only require four points to be addressed;

• the market value of the land;
• work that would increase the value of the land;
• marketing the property;
• any other relevant information.

Duty to act in best interests of the charity

In addition, trustees, officers, and employees of the charity will be able to advise the charity on land disposals. While this may provide the charity with a cost-effective alternative to independent professional advisors, trustees should be wary of their duty to act in the best interest of the charity. A failure to seek appropriate professional advice could amount to serious misconduct, especially where the action results in a detriment or loss to the charity.

Obtaining professional advice

Trustees and advisors need look no further than the Charity Commission Inquiry into The Spiritualist Association of Great Britain (formerly The Marylebone Spiritualist Association) Ltd, for a cautionary tale on obtaining and following professional advice. In this case, a property was sold by the charity for £6 million. A short while later, the property was sold on for £21 million, suggesting a potential loss to the charity of £15 million. While the Charity Commission decided it was not possible or proportionate to take further action against the charity in this instance, the inquiry stresses the need for trustees to seek and follow appropriate professional advice.

While the 2022 Act will certainly widen the options available to trustees when disposing of land, this newfound freedom should be exercised with caution. Trustees must always act in the best interest of the charity; this includes taking (and following), professional advice where necessary. We hope more guidance from the Charity Commission will follow.

Paying trustees for services and goods

Save for exceptional circumstances, the role of trustee is voluntary. However, if a trustee provides a service (and goods) beyond their role as trustee, the Charities Act 2011 allows them to receive remuneration. The 2022 Act will extend this provision to allow charities to remunerate trustees for simply providing goods, (without the service).

Ex-gratia payments

As a starting point, charities may only make grants to individuals and organisations falling within the scope of their charitable objectives. Under the Charities Act 2011, if a charity wishes to benefit an individual or organisation beyond the scope of their charitable objectives, permission must be sought from the Charity Commission.

Under the 2022 Act, where the charity is regarded as being under a moral obligation, ex-gratia payments may be made to individuals and organisations beyond the scope of their charitable objectives without first seeking consent. The value of the payments is limited, depending on the income of the charity in the previous financial period.

We suggest that trustees document any decisions made under this new power by way of recorded minutes, and ideally, a Trustee Resolution.

Fundraising appeals that raise too much or not enough

Charities often have fundraising drives to raise money for a specific project. Where an excess or not enough funds are raised, the trustees cannot simply spend the funds on alternative projects. In some circumstances, trustees must wait up to six months to allow the donor to request a refund before utilising the donations. Under the 2022 Act, the six-month rule will be abolished.

Where the excess donations are below £1,000, the funds may be used for alternative projects, without first obtaining consent from the Charity Commission. Where consent is still required, we are told the process will be more straightforward and a scheme will not be required. We await further guidance on this point.

Summary

As these provisions gradually come into force, we hope to see further guidance from the Charity Commission. While trustees will have the freedom to act with less input from the Charity Commission, this will of course remove a level of ‘checks and balances’. Greater responsibility is being placed in the hands of trustees and they should be mindful that suitable professional advice is more important than ever.