Open dialogue: Technical issues in charity law

The latest consultation by the Law Commission in relation to charity law, which opened on 20 March, is the second part of a consultation that began with proposals relating to charities’ powers to make social investments.

The Law Commission has now turned its attention to wider proposals for change to charity law. This consultation, welcomed by the Charity Commission, covers a broad range of legal issues affecting charities, and its main aim is to reduce the administrative burden on the charity sector and remove uncertainty and ambiguity in the law governing charities.

Achieving change

The consultation can be divided into three broad areas of change, which the Law Commission attempts to achieve in different ways:

1. More powers for charities and reducing Charity Commission involvement.

There is a general theme throughout the consultation towards removing the requirement for Charity Commission consent and increasing the powers of charity trustees to make changes or take action themselves. The Law Commission’s stated intention is to reduce unnecessary bureaucracy and ensure that charities may operate efficiently, while preserving sufficient safeguards to uphold and protect the reputation of the charity sector as
a whole.

There is a significant focus on royal charter and statutory bodies in the consultation. Amendments to the governing documents of such organisations currently require heavy involvement from the Privy Council and the Charity Commission, which results in a long, complex process, even for minor changes.

The Law Commission believes, from anecdotal evidence, that some such charities are not making planned amendments, or are delaying them, because the process is so cumbersome. The consultation therefore asks whether these bodies should be able to make minor amendments without external consent.

There is an argument that these charities have a different status to others because royal charter or statutory status brings a high level of public endorsement. In that regard, it might be argued that it would be more appropriate to maintain a higher level of scrutiny on the activities of these charities.

The Law Commission, however, believes the ability of such charities to carry out their functions should not be inhibited by the history of their establishment. A move to lighten the administrative burden would align them with other charitable bodies and enable them to operate more efficiently.

Reducing the burden on other types of charities is also explored, with suggestions ranging from increasing the income threshold to amend unincorporated charities’ purposes, to enabling trustees to dispose of land without the need to obtain a surveyor’s report, a more flexible approach to dealing with permanent endowment, and permitting trustees to make small ex gratia payments and cy-près schemes without Charity Commission consent.

The latest consultation acknowledges that Charity Commission involvement can sometimes be a welcome intervention. For example, cy-près schemes may benefit from a regulator’s touch – these can appear controversial to the public, therefore it may be safer to leave them in the Commission’s hands.

Similarly, giving trustees flexibility to make their own decisions means they must exercise discretion. Trustees’ liabilities are onerous, so they may prefer more definite direction rather than making decisions based on principles such as ‘reasonableness’.

The proposed power for trustees to dispose of land without obtaining advice may not be attractive to wary trustees of small to medium-sized charities without the skill or experience to judge the appropriate selling price or marketing strategy for a property; the current requirement may seem excessive, but at least trustees can clearly identify their duties.

Overall, the consultation includes some interesting proposals which will impact charities in different ways depending on their size, type, and activities. Therefore, the difficult task for the Law Commission will be to strike a balance between reducing unnecessary burdens and protecting crucial safeguards in a way that benefits all charities.

2. Widening the powers of the Charity Commission, Charity Tribunal, courts, and attorney general.

The consultation also includes proposals to increase the powers of the sector’s regulators. The aim is to ensure that public confidence remains high, while giving more power to the Charity Commission and other regulatory bodies.

Many of these proposals give the sector’s regulators more powers to authorise the actions of charities, for example allowing the attorney general, courts, and the Charity Commission to authorise ex gratia payments by statutory bodies. While this proposal requires direct involvement from the regulators, its purpose is to enable such charities to operate more easily.

The consultation also proposes that charities are able to obtain authorisation to pursue applications against the Commission from the Tribunal or the courts, rather than the Commission itself, as is currently the case. The current position includes an inherent conflict of interest for the Charity Commission, the existence and appearance of which needs to be removed.

There are also proposals for extension of the Charity Commission’s powers where a charity applies for registration or a change of name and its proposed name is not acceptable under legislation. It is suggested that the Charity Commission should be able to refuse or stay the application pending an inquiry.

3. Requests for clarification of Charity Commission guidance and legislation.

The consultation suggests several areas where clarification of charity guidance and legislation would be beneficial. One of the Law Commission’s goals in respect of these proposals is to reduce uncertainty for trustees and make it easier for charities to operate.

The Law Commission again focuses on royal charter and statutory bodies, asking for the publication of advice as to where certain areas
of governance should be dealt with in the constitutions of these charities. Byelaws and regulations are easier to amend than charters, and thus clearer guidance on this issue would assist charities.

There is also a suggestion that guidance
on the Privy Council process for amending governing documents will be produced, which would be a welcome change to this notoriously complex area.

In more general terms, there are suggestions for clarification of Charity Commission guidance, for example covering the availability of trust property to meet liabilities of insolvent trustees, and of the Charities Act 2011, including a proposal for greater clarity on the administrative amendments to governing documents and the release of permanent endowment.

The Charity Commission is already in the process of updating several sections of its guidance, such as public benefit and guidance for trustees. There appears to be confusion for charity trustees in some areas of charity law, which needs to be reduced in order to enable charities to operate more easily, and it is therefore encouraging that this issue has been so clearly highlighted in this consultation.

The Law Commission’s consultation underlines the main desires of both charities and their regulators to increase charities’ powers to operate, to give regulators greater powers to facilitate that operation, to maintain safeguards to protect the public interest, and to assist trustees by producing clear guidance.

The deadline for the consultation is 3 July 2015, following which the Law Commission expects to publish recommendations and a draft Bill in 2016. Responses from charities, lawyers, and members of the voluntary sector are encouraged in order to ensure the opportunity to make a difference to this area of law is not missed. SJ

Alison Talbot, pictured, is a partner and Charlotte Russell is a trainee in the charities team at Blake Morgan