Charity laws 'inefficient and unduly complex'

Current charity laws hinder legitimate charitable activities and force charities to obtain professional advice that should not be necessary, the Law Commission has said in new proposals to reform the rules regulating the third sector.

“Charities are a force for good and millions regularly donate to help others. But the rules that govern them have to be right,” said professor Nick Hopkins, the commissioner in charge of the project. “As it is, some of the technical law around charities is inefficient and unduly complex. Our reforms would help make sure charities use their time and money in the best way to support their good causes, whilst providing oversight to ensure public confidence.”

Nicola Evans, charities counsel at Bircham Dyson Bell, said although the recommendations were of a technical nature, they were “important, with real practical consequences for charities”. Evans, who chaired the Charity Law Association’s working party response to the proposals, said they offered “a real opportunity to remove some of the complexity and inconsistencies which can make charity law difficult both to apply and to regulate”.

In its 'Technical Issues in Charity Law' report, the Law Commission puts forward a number of recommendations such as relaxing the rules governing the sale of land by charities, potentially saving charities an estimated £2.8m per year.

In relation to the sale of land, there would also be a simpler process for certifying compliance with the formal requirements of the Charities Act and the statutory requirement to give public notice of disposals of designated land would be removed.

Amending a charity’s governing documents would be simplified too, with a single process for both corporate and unincorporated organisations. This would include a new statutory power for unincorporated charities to amend their constitutions by resolution and a new set of criteria for the Charity Commission to consider before consenting to a change of purpose.

The report further proposes to allow charities to borrow from permanent endowments, which they can’t at the moment. In addition, trustees who have opted in to so-called ‘total return investment’ would be able to use permanent endowments for loss-making social investments if they are offset elsewhere.

Other proposals include the introduction of ‘authorised costs orders’. These would provide advanced assurance that the costs incurred by trustees involved in litigation in the Charity Tribunal can properly be paid from the charity’s funds.

In addition, the Charity Commission would also be empowered to stop a charity using a misleading name and could retroactively confirm the appointment of trustees where this is being challenged.

The Law Commission’s proposals follow on from its earlier work on charity law reform and from Lord Hodgson’s 2012 review of the Charities Act. Its earlier 'Social Investment by Charities' report in 2014 made a number of recommendations which were included in the Charities (Protection and Social Investment) Act 2016.

Commenting on these latest proposals, Lord Hodgson said unnecessary burdens on trustees “act like barnacles on a boat, causing a drag when all should be plain sailing.”

“Since the recommendations have now been consulted on extensively and are approved of by the sector, I hope the government will find time to implement them speedily.”

The project dealt solely with some technical issues of charity law. Other issues such as the law of public benefit or the charitable status of independent schools have been left for possible consideration at a later stage.

According to the Law Commission, more than two-thirds of its reports have been accepted or implemented in whole or in part. Earlier this summer, Lord Thomas suggested that the law reform body could be entrusted with the repatriation of EU law into English law in the run-up to Brexit. The former Lord Chief Justice warned, however, that this could involve the risk of turning the independent commission into a political body.

Jean-Yves Gilg, editor-in-chief

jean-yves.gilg@solicitorsjournal.co.uk | @jeanyvesgilg