Considering recent changes in charity law - permanent endowment, charity land and names

The Charities Bill 2021-2022 received royal assent on 24 February 2022 becoming the Charities Act 2022 (“CA 22”). CA 22 was created primarily to reduce unnecessary bureaucracy for charity trustees by amending the Charities Act 2011 (“Charities Act”) following recommendations raised in a 2017 Law Commission report.

Since receiving royal assent, CA 22 has been implemented in stages, the first of which was on 31 October 2022. The second tranche of changes came into effect on 14 June, and this article seeks to summarise these and briefly explain what they mean for charity trustees.

In summary, the main changes which came into effect on 14 June relate to permanent endowment (and how it can be dealt with), the charity land disposal regime and charity names, all of which are addressed below.

Permanent Endowment

Permanent endowment is often something of a concern to charity trustees. Knowing which of the charity’s assets are permanently endowed, what this means, and whether (particularly in the current economic climate) any of it can be released to spend or invest in furtherance of the charity’s objectives is something that can be difficult to ascertain.

The 2017 Law Commission report found that “permanent endowment means different things to different people” leading to confusion on how it can be dealt with by trustees. A new definition has been created by CA 22 whereby permanent endowment is property “subject to a restriction on being expended which distinguishes between income and capital”. Therefore, permanent endowment refers to funds which prevent trustees from spending the capital, instead investing them and spending the proceeds for the purposes of the fund (which may be the same or narrower than the charity’s objectives).

Where a charity has permanent endowment and the value of this fund is under £25,000 the trustees can (in certain circumstances) resolve to spend some or all of the capital free from the restrictions. Where the fund is larger than £25,000 the trustees can pass a similar resolution but this will be subject to Charity Commission consent, which must be obtained before any of the capital is spent. Under CA 22 the Commission do now have a 60 day timeframe in which to respond to applications the lapse of which will effectively be deemed consent.

In addition to a resolution to release the capital of permanent endowment from restrictions, CA 22 also provides two new powers:

1. A power to borrow from permanent endowment up to 25% of the value of the capital subject to repayment within 20 years (note – borrowed funds still count towards the £25,000 above); and
2. Where trustees have opted into a total return investment regime, to release permanent endowment to make social investments with a negative or uncertain financial return.

The practical implications of these are yet to be fully worked through (having only come into force in June 2023) but both potentially offer trustees a way to make permanently endowed capital work more proactively towards a charity’s purposes.

Charity Land

It is a general position under the Charities Act that a charity cannot dispose of land unless it has been granted an order of the court or Charity Commission. Many disposals do not require such an order however as the trustees can follow the procedures set out in s119 or s120 of the Charities Act (provided the disposal is not to a connected person).

CA 22 firstly clarifies that the above restrictions will not apply where:

• A charity is one of several beneficial joint tenants of land and the trustee of the land is disposing of it in its entirety;
• A charity is one of several tenants in common and again the trustee is disposing of the entirety of the land;
• Land which is being disposed has been appropriated/assented to multiple beneficiaries under a will, one of which is a charity; or
• A trustee holds land on trust for multiple beneficiaries, one of which is a charity;

Where a land disposal is being made under the procedures set out in s119, CA 22 makes several changes:-

1. CA 22 replaces references in s119 Charities Act 2011 to “qualified surveyor” with “designated adviser”. A designated adviser can still be a fellow or professional associate of RICS, but now also includes members at fellow grade of NAEA Propertymark (the professional membership scheme for estate agents, formerly called the National Association of Estate Agents). Where such a person is also a charity trustee, officer or employee they can provide this advice to the charity.
2. The detail which must be included in a report detailed in (1) has changed. The previous prescriptive information has been replaced with broader categories of advice.

2. Finally, the requirement to advertise the proposed disposition for such period and in such a manner as the surveyor advises above has been removed. Even if the designated adviser recommends the land be marketed (and how), this is no longer an obligation on the trustees. Of course, they will need to have a good reason for this and their consideration and decision must be minuted.

Finally, where a charity employee is granted a short, fixed-term or periodic tenancy of charity land to use as their home, this is removed from the definition of “connected person”. Consequently, the charity will need to take advice but does not need Charity Commission consent.

The above changes (with more due to come by the end of the year) help to clarify what is captured by the disposal regime, and should also give some relief to charity trustees by making what can sometimes be an onerous and costly process a little simpler.

Charity Name

CA 22 gives the Charity Commission the power to direct a charity to stop using a specific working name, in addition to its existing power in relation to a charity’s formal name. It also gives the Commission power to direct a charity to change its formal or working name if the name in question is the same as, or too similar, to an existing charity’s formal or working name (regardless of whether the charity is registered or not).

Additionally, CA 22 gives the commission power to delay registration of a charity with an unsuitable name, or delay the entry of an unsuitable name onto the register – subject to some restrictions and a maximum postponement period of 60 days.

Finally, the power to direct a change of name has been expanded to include exempt charities, provided the commission has consulted first with the exempt charity’s principal regulator.

The effect of these changes on trustees will mean that particular care should be taken when selecting charity names (and working names, using the Charity Commission and Companies House name checker (where appropriate) to avoid potential clashes.

Other matters

In addition to the above CA 22 creates a number of other minor and consequential amendments, largely to give effect to the larger changes above.

It should be noted that the third tranche of changes is expected before the end of 2023. This includes further tweaks to the charity land disposal regime, matters relating to the appointment and remuneration of charity trustees and charity mergers. Watch this space!