The Charities Act 2022, aimed to simplify and facilitate running charities, was granted royal assent on 24 February 2022 and has come into force in three phases, the latest coming into force on 7 March 2024. Previous phases are summarised in our previous blogs linked to at the bottom of this article.
Land dispositions and mortgages:
- There are restrictions and safeguards in Part 7 Charities Act 2011 on charity property transactions. One of the exceptions to Part 7 involves a disposition of land to another charity at an undervalue. The new Act clarifies these rules, as it was not clear how they applied to social investment. Wording has been added to make it clear that social investments are excluded. The objective must be solely the promotion of the transferor's charitable objects.
- The certification regime has been changed – now there is no need for a charity trustee compliance certificate; instead a compliance statement will be included in the contract and conveyance/mortgage.
- The Universities and College Estates Act 1925 applies to Universities, colleges, and halls of Oxford, Cambridge and Durham, and to Winchester and Eton Colleges. The Act is being amended to give the universities and colleges to which it applies all the powers over land of an absolute owner, removing the need for approval of transfers by the Secretary of State. The new power is subject to restrictions imposed by statute, common law, equity or the institution's governing document. That means a disposal of land will be subject to the restrictions in Part 7 of ChA 2011. These provisions are due to come into force on 19 May 2024.
- There are new rules meaning dispositions by a:
- liquidator;
- provisional liquidator;
- receiver;
- mortgagee; or
- an administrator
will not be subject to the restrictions in Part 7 of the Charities Act 2011.
Further guidance on all of these changes can be found in the Land Registry Guidance Practice guide 14: charities - GOV.UK (www.gov.uk)
Charity Constitutions
Changes to the regulated alteration regime have come into force for unincorporated charities, trusts, charitable companies and CIOs wishing to change their constitutions.
The Act brings in a statutory regulated alterations scheme for unincorporated charities (trusts and unincorporated associations), similar to that for corporate charities. This new general power replaces a complex (14 provisions), but in places useful, set of powers that depended on the size of the charity. You can see how the Act is simplifying charity law.
Interestingly 66% or so of the roughly 170,000 registered charities are unincorporated, so these powers will have a broad reach.
There is a broad new power for trusts and unincorporated associations to amend their constitutions, by passing a resolution. This applies in addition to any other powers the charity may have and cannot be excluded or modified in the governing document.
There are three limits on the use of the power:
- the trustees must be satisfied that the change is expedient in the interests of the charity;
- the power is not exercisable in any way that would result in the organisation no longer being charitable; and
- certain amendments are invalid unless prior written consent of the Charity Commission has been obtained.
The alterations for which the trustees must seek Charity Commission consent are:
- purposes
- dissolution provisions
- trustee benefit provisions
- permanent endowment restrictions
- changes affecting any constitutional rights of a person/office holder
The Commission will apply the same, now statutory, test when deciding whether to give authority to charitable companies, CIOs, trusts and unincorporated charities to change their charitable purposes.
Where there is a change of purposes, the Commission must have regard to:
- the purposes of the charity when it was established;
- the desirability of securing that the purposes are so far as practicable, similar to the purposes being altered; and
- the need for the charity to have purposes which are suitable and effective in light of current social and economic circumstances.
There is also a new power allowing charities to appeal to the Charity Tribunal against a decision of the Charity Commission to withhold consent, but there is one inconsistency. For unincorporated charities there is no right to appeal against a decision to grant consent, whereas for incorporated charities (companies, CIOs) there is.
Under the new provisions the majorities required to pass a resolution under this power have changed.
If there is a distinct membership entitled to vote at a general meeting:
- Charity trustees – majority decision
- Members 75% or unanimous. (this used to be 2/3)
If there is no separate body of members then the trustees must pass a 75%+ (formerly 2/3) resolution. The rationale for these changes is that they mirror the CIO provisions.
Any amendment that could have been made under the numerous previous provisions should be possible to make under the new general power – so all in all a useful simplification.
Changes for Companies and CIOs
There is one change for companies: the wording has been changed so that changes affecting objects, which may not be in the objects clause, will require Commission consent.
There is also a new power for the Charity Commission to give public notice, or to direct a charity to give notice, of regulated alterations (for example a change of objects) to a governing document.
Charitable Incorporated Organisations
Historically, CIO constitutional changes have been somewhat uncertain since the resolution only took effect when registered with the Charity Commission. Delays at that end meant the CIO couldn’t be sure when it had updated its constitution. This problem has been rectified to align with the companies regime – the resolution will take effect on the date that it is passed, or later date specified in the resolution. The exception to this is when a charity is amending its purposes the resolution takes effect when approved by the Commission or on a later date specified in the resolution. Note that the 15 day filing period is still in place.
Trustee Appointments
A new power has been introduced to allow the Charity Commission to confirm a defective appointment of a charity trustee. They can also vest property in the trustee or ratify the validity of the trustees’ actions. We think that in most situations, normally very difficult to sort out, this new power will be very useful, but perhaps not so much in contentious situations.
Trustee Remuneration
At the moment, if a trustee does some work for the charity, and should have been paid for that work, but the work was not properly authorised by the charity, the Commission cannot authorise a benefit retrospectively. The Act gives the Commission the power to authorise benefits, where it would be inequitable for the trustee not to be remunerated. The Commission will be unable to use this power where there is an express prohibition in the charity’s constitution. Because the Commission retains some discretion here we consider this power to be no substitute for a properly conducted approval process in advance of the trustee carrying out the work.
Gifts to merged charities
Historically legislation has failed to save all gifts made to a charity that has merged. The reworded provisions will be able to save gifts, provided the merger is registered on the Register of Mergers, even through successive mergers. The original charity will be deemed to still be in existence after the merger, unless express wording prohibits this. As far as we can tell, for most charity mergers this new wording will remove the need to retain a shell charity on the register. If significant legacy income is expected then the potential risks of contested legacies may mean keeping a shell charity is prudent.
For links to more coverage of the Charities Act 2022 take a look at our previous blogs