A year has now passed since the penultimate tranche of the Charities Act 2022 came into force, bringing with it further changes to charity law designed to iron out certain quirks and eccentricities in the system and make it more efficient and effective as a result. As we mark this anniversary, we wanted to reflect on how the Act may have impacted on your charity so far.
The three key changes brought in on 7 March 2024 which we have considered here are:
- Amendments to charity governing documents;
- The register of mergers; and
- Property disposals.
Charity governing documents
Since 7 March 2024, unincorporated charities (e.g. trusts) have had a new statutory power to amend their governing documents. This statutory power replaced a more complex set of powers in the Charities Act that depended on the size of the charity.
"Overall, we have found the new power to be beneficial for our unincorporated charity clients, particularly as the occasions when Charity Commission schemes are required have reduced
It has effectively brought unincorporated charities onto a level footing with incorporated charities, including bringing them under a more closely equivalent regime for requiring Charity Commission consent when making certain changes, including to the charity's objects.
Overall, we have found the new power to be beneficial for our unincorporated charity clients, particularly as the occasions when Charity Commission schemes are required have reduced.
Instead, governing documents can generally be amended by a simple trustees' resolution (and members' resolution in the case of unincorporated charities which have members). We have, though – and as predicted – found that clients have sometimes found challenging the new range of factors that must be taken into account when proposing an amendment to charitable objects.
Register of Mergers
The Charities Act 2006 introduced the Register of Mergers to ensure that when two charities merged, provided the merger was listed on the register, any legacy intended for the transferring charity would automatically be treated as a gift to the merged charity. A gap existed, however, in situations where in broad terms a will specified that the receiving charity must continue to exist at the date of death. In those cases, the legacy would fail, even if the merger was registered.
The Charities Act 2022 has largely closed this gap by ensuring that all legacies will transfer to the merged charity provided the death occurs after the relevant provision of the Act came into force (unless the legator actively excludes it in the will).
This change provides greater certainty for charities and, in particular, reduces the need to maintain a 'shell' charity solely to capture any legacy income that might otherwise have failed.
We have already seen a case where a charity would have benefitted from these provisions had the legator not died just before the Act came into force. There are of course ways to manage this situation and we have ensured that the legacy was ultimately received by the charity, but the new rules make this type of situation considerably more straightforward.
Property disposals
The Part 7 restrictions on disposals of charity land contained in the Charities Act 2011 were often criticised for being overly prescriptive and burdensome, and ill-suited to more complex property transactions. The Charities Act 2022 sought to introduce more flexibility into the regime and reduce the administrative burden of compliance. As a reminder of the key areas introduced by the 2022 Act:
Changes to who can provide advice and what the advice should cover
Trustees may now obtain advice in relation to disposals from a wider category of 'designated advisors'. In addition to members of RICS, this includes fellows of The NAEA Propertymark (the professional membership scheme for estate agents) and The Central Association of Agricultural Valuers. The designated advisor may also be a charity trustee, officer or employee of the charity provided that they are appropriately qualified and that any conflicts of interest are managed.
Changes in the regulations
The Charities (Qualified Surveyors' Report) Regulations 1992 which prescribed the content of the qualifying surveyor's report under the Charities Act 2011 have been replaced by The Charities (Dispositions of Land: Designated Advisers and Reports) Regulations 2023. The new regulations are less prescriptive and more holistic, and are designed to resolve certain underlying tensions in the original regulations, particularly when applied to more complex arrangements.
Removal of the duty to advertise
Charity trustees must consider any advice on advertising the proposed disposal given by the designated adviser but no longer have a statutory duty to follow that advice.
Charities Act 2011 compliance statements
Previously, the document effecting the disposal (such as the lease or transfer) had to include a certificate which could only be given by the charity's trustees. This requirement has been replaced by the requirement to include a statement of compliance in both the disposal contract and the document effecting the disposal. Logistically this reduces the burden for charities when entering into property transactions as the statement can be given by the legal owner of the land rather than all of the charity's trustees which in practice often required a delegation of the responsibility to two specified trustees.
Changes to the definition of 'connected persons'
A charity may now grant a tenancy to an employee for a year or less to use as a home without needing to obtain an order from the Charity Commission provided that the disposal is on the best terms reasonably obtainable by the charity.
Multiple beneficiaries
The Part 7 restrictions no longer apply where land is held by, or in trust for, multiple charitable beneficiaries. This means, for example, disposals of property left by legacy to two or more charities are now exempt from the Part 7 restrictions, even where there has been appropriation by an executor prior to sale.
"It is probably too early to tell how successful these changes have been overall in achieving their goals, but as we continue to support our charity clients in navigating them, we would love to hear from if you have any insights
These changes were designed to help charities operate more efficiently and also bring all charities – regardless of their legal structure – onto a more level playing field. The final set of changes – relating to ex gratia payments – are expected to come into effect later this year (though no date has been given yet).
It is probably too early to tell how successful these changes have been overall in achieving their goals, but as we continue to support our charity clients in navigating them, we would love to hear from if you have any insights – and in particular whether you feel that the expectation that the changes would benefit charities by making them easier to operate at a practical level, has been met.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
