Update On The Charities Act 2022 

Introduction

The Charities Act 2022 (“CA 2022”) was created primarily to reduce unnecessary bureaucracy for charity trustees by amending the Charities Act 2011 (“CA 2011”) following recommendations raised in a 2017 Law Commission report. Since receiving royal assent, provisions of the CA 2022 have been implemented in tranches. The third tranche of provisions was supposed to come into effect “by the end of 2023”. However, this has now been delayed to “early 2024” to enable the Government to work with the Land Registry to agree the consequential amendments required, including to the Land Registration Rules 2023.

Some of the changes to the CA 2011 due to be implemented in “early 2024” relate to the charities’ disposal regime – the process charities need to comply with when disposing of land or property (“land”) or mortgaging land. We now know these changes will be implemented with effect from 7th March 2024.

These changes are relevant for all registered charities regardless of the sector they operate in, and some third parties dealing with charities, including purchasers and lenders.

A reminder of the current position when charities dispose of land or mortgage land

The current position under Part VII of the CA 2011 is that, generally speaking, a charity cannot dispose of, or mortgage, land unless it has been granted an Order of the Court or the Charity Commission. However, except where a disposal is being made to a “connected person”, most disposals and mortgages do not require such an Order as charities can follow the processes set out in either:

• s119 – s121 CA 2011 which provides charity trustees can dispose of land if prior to the disposal they have obtained and considered a written report on the disposition from a designated advisor and are satisfied, having considered such report, that the terms of the disposal are the best that can reasonably be obtained; or
• s124 – s126 CA 2011 which provides charity trustees can enter into a mortgage if prior to execution they have obtained and considered proper written advice on relevant matters.

Additionally, s117(3) of the CA 2011 sets out exemptions to the general restrictions on disposals and mortgages so that neither an Order nor the processes set out in s119 – s121 or s124 – s126 of the CA 2011 need to be followed. These include:

• 117(3)(a) CA 2011 – where a statutory provision, or Charity Commission scheme allows it;
• 117(3)(b) CA 2011 – where consent or authorisation is required under the Universities and College Estates Act 1925;
• 117(3)(c) CA 2011 – where a disposal is made to another charity for less than the best price reasonably obtainable, where authorised by the governing document of the charity; or
• 117(3)(d) CA 2011 – the granting by a charity of a lease to a beneficiary where the lease is granted for less than the best rent and the property is intended to be occupied for the purpose of the charity (i.e. a lease of below market rent to a beneficiary of the charity).

A similar process to the above also exists for mortgages, in that a charity cannot mortgage charity land without an Order unless the charity’s Board obtains and considers written advice on the mortgage before entering into it. Section 124(9) of the CA 2011 sets out exemptions to the obligation to obtain and consider written advice on a mortgage, being where the provisions of s117(3)(a) or (b) apply.

Exempt charities generally do not have to comply with the above provisions. However, charity trustees are expected to fulfil their general duties when disposing or mortgaging charity land, which will include providing certain statements required under s122(2), s122(8) and s125 CA 2011 (as detailed below).

Changes being brought in by the CA 2022

(1) Changes to the exemptions

The CA 22 amends the exemptions in s117(3) and s124(9) in several ways:-

Firstly, it includes an additional clause in each of 117(3) and 124(9) allowing a disposal or mortgage by a liquidator, provisional liquidator, receiver, mortgagee or administrator. The practical implications of which is that it will be substantially easier for charity land to be disposed by insolvency practitioners.

Secondly it amends the wording of 117(3)(c) so that the exemption only applies to disposals to another charity that have the sole intention to further the disposing charity’s purposes. This means this exception will not apply if the disposition is:

• a commercial transaction – a transaction intended to achieve the best price that can reasonably be obtained for the disposing charity; or
• a social investment.

Thirdly, it removes the requirement in 117(3)(c) for the disposition to be authorised by the governing document of the charity. Whilst this means the governing document of a charity need not have a specific power relating to such a disposal, the change does not go as far as allowing the charity to make a disposal that is prohibited by its governing document (for example a transfer at undervalue to a charity with incompatible purposes).

(2) Changes to the statements

Another substantial change to the disposal regime relates to the certificates and statements that need to be given when charities dispose of, or mortgage, land under s122 or s125 of the CA 2011.

Currently, the disposal document itself (i.e. the document effecting the disposal or mortgage, for example the lease, land transfer, mortgage deed etc.) must contain the following statements:

• that the land is held by or in trust for a charity;
• whether the charity is an exempt charity or not;
• if not an exempt charity, whether the disposition falls within the exceptions from s117(3); and
• if not an exempt charity and the disposal does not fall within the s117(3) exemptions, a further statement saying that the charity has power to effect the disposition and the provisions of s117 to s121 or s124 of the CA 2011 (as applicable) have been complied with.

The CA 2022 includes an obligation for charities to include the statements above not only in the disposal document but also in the contract for disposition or mortgage. Accordingly it will be necessary to include statements at each stage of the transaction – both contract (i.e. exchange) and completion.

Third Party Protection

The CA 2022 also amends the purchaser and mortgagee protection rules so that a statement in a contract for a disposition of mortgage is conclusively presumed to be true in favour of the person enforcing the contract and where no statement has been given in the contract, to make it enforceable in favour of a person who has entered into the contract in good faith

(3) Changes to the certificates

Currently, under s122(3) and s125(2) of the CA 2011, it is necessary for the charity’s trustees in a personal capacity to certify that either the disposition or mortgage has been either:

• sanctioned by an order of the Court or the Charity Commission; or
• that the provisions of s117 – s121 of the CA 2011 (for disposals) or s124(2) of the CA 2011 (for mortgages) have been complied with.

This means a disposal document has to contain such a certificate and that the charity trustees personally (usually acting by two of their number pursuant to a ‘s333 CA 2011 resolution’) have to sign the disposal document in order to give the certificate. For incorporated charities this often means having two execution clauses – one for the incorporated charity entering into the disposal document as the proprietor of the land and one for the charity trustees to give the required certificate.

The CA 2022 will repeal s122(3) and s125(2) of the CA 2011 meaning it will no longer necessary for charity trustees in a personal capacity to sign disposal documents to give the certificate. This will streamline the execution process for charities, particularly for incorporated charities.

Practical steps to take

As these provisions come into force on the 7 March 2024, charities and relevant third parties (such as lenders) should now:

• update any existing precedent documents (such as leases, transfer deeds, legal charges, debentures etc.) to reflect the new provisions particularly in relation to the trustees in a personal capacity no longer having to provide the Charities Act disposal statements and certificates;
• review and update any precedent contract documents to include the relevant Charities Act disposal statements and certificates;
• review internal governance policies to ensure they are updated to reflect the new Charities Act disposal regime, in particular, regarding charity trustees no longer having personal responsibility for providing the disposal statements and certificates.

If you have any questions concerning anything above, please contact Rachel Gwynne and Ellis Pugh.