Charity law update

There have been some changes to charity law lately, so here is a summary of those changes.

Certain changes have been introduced by the Charities Act 2022 (the Act), which amends the Charities Act 2011.

Some of the changes came into force on 14 June 2023 and other on the 31 October 2022. Additional changes are due to come into force in early 2024.

Changes that came into force on 14 June 2023

Selling, leasing or otherwise disposing of charity land

Charities must comply with certain legal requirements before they dispose of charity land. Disposal can include selling, transferring or leasing charity land. The Act simplifies some of these legal requirements. The changes include:

• widening the category of designated advisers who can provide charities with advice on certain disposals
• confirming that a trustee, officer or employee can provide advice on a disposal if they meet the relevant requirements
• giving trustees discretion to decide how to advertise a proposed disposal of charity land
• removing the requirement for charities to get Commission authority to grant a residential lease to a charity employee for a short periodic or fixed term tenancy.

These changes should provide more flexibility for charities to dispose of land and allow a trustee to provide advice on the disposal, if they are suitably qualified, rather than obtaining external advice. This could reduce the burden of having to obtain certain, specific reports.

Using permanent endowment

A permanent endowment is property that a charity must keep rather than spend.

The Act introduces new statutory powers to enable:

• charities to spend, in certain circumstances, from a ‘smaller value’ permanent endowment fund of £25,000 or less without Commission authority
• certain charities to borrow up to 25% of the value of their permanent endowment fund without Commission authority.

Charities that cannot use the statutory powers will require Charity Commission authority.

Where there is permanent endowment, a charity may borrow up to 25% of it without requiring the Commission’s consent. The amount is, however, to be repaid within a period of 20 years. Permanent endowment can also be used for social investments, whereas before any investment had to have a financial return. The Commission will be issuing guidance and regulations around this in the future.

Charity names

The Commission can currently direct a charity to change its name if it is too similar to another charity’s name or is offensive or misleading.

The Act enables the Commission to:

• direct a charity to stop using a working name if it is too similar to another charity’s name or is offensive or misleading. A working name is any name used to identify a charity and under which the activities of the charity are carried out
• delay registration of a charity with an unsuitable name or delay entry of a new unsuitable name onto the charities’ register
• use its powers in relation to exempt charities in consultation with the principal regulator.

Changes that came into force on 31 October 2022

Paying trustees for providing services or goods to the charity

Charities now have a statutory power to pay trustees for providing goods alone to the charity in certain circumstances.

Using the new statutory power, trustees can be paid for:

• services only, for example estate agency or consultancy
• services and associated goods, for example plumbing or painting service and any associated materials such as plumbing parts or paint
• goods only, for example supplying stationery to the charity.

This means that small payments can be made to charities for their services or for the provision of goods.

It may also be the case that payments include remuneration for work already carried out, subject to some tests, such as whether the charity would have had to pay someone else for the work and the quality of the work carried out, prohibition against payment in the constitution and whether it could lead to breaches of trust. Such payments will be by order of the Commission, where it concludes that it would be inequitable not to make the payment.

Fundraising appeals that do not raise enough or raise too much

There are now simpler requirements for trustees to follow if an appeal does not raise the amount needed to deliver its aim, raises too much or circumstances change and the donations cannot be used as intended.

2024 provisions

The following provisions are expected to come into force in early 2024:

• the provisions relating to disposals by liquidators, provisional liquidators, receivers, mortgagees or administrators
• the provisions relating to the taking out of mortgages by liquidators, provisional liquidators, receivers, mortgagees or administrators
• changes about what must be included in statements and certificates for both disposals and mortgages.

Additional changes

Charities may now make small ex-gratia payments to trustees, subject to financial thresholds relating to the charity’s incomer, which set the limits of the amounts of such payments.

At present a charity can change its objects subject to providing the Commission with an explanation of the reasoning. The Act will make it more difficult to make changes to a charity’s objects, as now the Commission will take into account more specific factors.

There are also changes for unincorporated charities and making changes to their constitutions, in terms of voting rights of members (both in the cases of open and closed membership) and when the Commission may need to consent to changes.

If a trustee has inadvertently been appointed incorrectly, the Commission will have the power to ratify the appointment.

Changes for Charitable Incorporated Organisations (CIOs)

The Commission has updated the model CIO constitutions which all new CIOs are expected to use from now on. The changes reflect those introduced by the Act as well as other changes.

Registration applications

New CIOs are expected to use the new model constitution from 1 November 2023. If a charity has already drafted a constitution using a previous model or template, it will need to check if there are changes which need to be made to the constitution to include the updated clauses before submitting an application.

This only applies if a charity has not submitted an application yet. If a charity has recently submitted an application, it does not need to take any action.

Only new CIOs applying to register need to use the updated wording. CIOs already registered with the Commission do not need to change their constitutions to include the new clauses. However, if making changes to a CIO’s constitution in the future, the charity may want to consider making some or all of these changes at the same time.