Charities Act 2022
Morgan Gilbert, Trainee Solicitor | 30th June 2023
The Charities Act 2022 seeks to implement most of the recommendations made by the Law Commission’s 2017 report, Technical Issues in Charity Law. The aim of the amendments to the Charities Act is to allow more freedom for charities in England and Wales and in turn save them time and money.
Not all the comments have been implemented from the Report, this article looks to outline some of the new provisions relating to property only.
Disposal of charitable land
Under the Charities Act 2011, trustees could not proceed with a disposal of charity land (i.e. sale, lease, easement) without an order from the Court or the Charity Commission authorising them to do so, unless the disposal fell outside the regime (e.g., being an exempt charity) or certain requirements are met.
Trustees did not need to obtain an order from the Commission if the disposal of land satisfied two requirements:
- The disposition is made to a person who is not a “connected person”, or a trustee or nominee for a connected person; and
- The charity trustees obtain and consider advice on the disposition from a “designated adviser”.
These two requirements have changed under the 2022 Act. The effects of these changes are explained below.
Exempt Charities
Exempt charities are referred to within Schedule 3 of the Charities Act, including;
- Educational charities
- Academy trusts
- Museums
- Galleries
- Institutions of national importance
- Social housing providers
- Church of England and Methodist Church Investment Funds
Exempt charities do not need authorisation from the Charity Commission to dispose of land or obtain a mortgage. However, trustees of exempt charities must fulfil their general trustee duties when dealing with land disposals and mortgages. These duties include a trustee acting with honesty, integrity, loyalty and good faith to the beneficiaries of the trust. A trustee must always act exclusively in the best interests of the trust and be actively involved in any decisions. These duties are relevant to all charities.
This definition remains unchanged.
Non-exempt Charities
“Connected person”
The 2022 Act has amended the definition of “connected person”. The definition has removed employees. This is in relation to a disposal that is a grant of a short, fixed-term or periodic tenancy (of one year or less). Charities can therefore provide short-term tenancies for employees if it is sensible to facilitate the charity’s work. Such disposals will no longer require authorisation from the Charity Commission.
Charities should, however, be aware that tax implications will need to be considered in relation to providing residential accommodation to employees.
“Designated Advisor”
Under the 2011 Act, when disposing of charitable land, the trustees had to obtain and consider a written report on the proposed sale provided by a RICS qualified surveyor.
To make the process more flexible for trustees, the 2022 Act has widened its definition of ‘qualified surveyor’, to ‘designated advisor’. This will allow fellows of the Central Association of Agricultural Valuers and Members of the National Association of Estate Agents Propertymark to give advice to trustees on disposal of the charity’s land.
The advice a charity must obtain before disposing of charitable land will be easier to obtain under the 2022 Act.
Changes to Permanent endowment
The definition of permanent endowment has been reformulated in the 2022 Act. Previously, a charity would be required to keep, rather than spend, money donated to it under a permanent endowment and would only be able to spend the income generated from it. The provisions under the 2022 Act will allow a charity to spend or borrow from its permanent endowment without first obtaining consent.
Up to £25,000 of permanent endowment funds can now be spent without prior authorisation from the Charity Commission. Charities can also now borrow up to 25% of the value of their permanent endowment fund, without permission from the Commission. It is important to note that any amount borrowed must be repaid within 20 years.
Advice may be needed to ensure the correct steps are followed as the new provision is not an all-encompassing definition. There will need to be a repayment plan so that the trustees can be satisfied that the amount borrowed can be repaid.
A contract, lease or transfer of non-exempt charitable land must contain specific provisions confirming that the Charities Act has been complied with. If this is not included within the drafting the Charities Commission are able to unpick the transaction and the disposal may become void or voidable. It is essential to seek independent legal advice when disposing of charitable land.
