The long awaited changes to the Charities Act 2011, recommended by the Law Commission have, for all but seven of its recommendations, been accepted by the government and were introduced to the House of Lords in the Charities Bill on 26 May 2021.

These amendments do not represent wholesale amendments to the rules governing charities but do represent a welcome improvement to the rules which will if enacted:

  • make amendments to governing documents easier;
  • relax the rules on professional advisers engaged in relation to land disposals;
  • increase flexibility as to the use of “permanent endowment”;
  • allow trustees to be paid for goods (as well as services) subject to the appropriate checks and balances;
  • provide for simpler, more proportionate rules regarding failed appeals and the use of associated charitable funds;
  • give the Commission power to ratify the appointment or election of charity trustees where there is uncertainty concerning the validity of their appointment or election; and
  • give charities greater flexibility to make ex gratia payments.

The government hopes that the changes will significantly improve the efficiency of the sector, release more funds for use on charitable purposes rather than administration, and reduce unnecessary and overly-bureaucratic regulation that not only increases the sector’s costs but also is a factor in discouraging people from volunteering to become trustees.

The Bill has generally been widely welcomed as a positive step forward.

Examples of ways in which the new provisions will improve matters are:

  • The Bill now introduces a streamlined provision for amendment of a charity’s trusts, whilst retaining the protection requiring written Charity Commission consent to a list of regulated changes. The rules relating to changes to a charity’s objects and how the Commission must exercise its discretion has been unified for all forms of charities both unincorporated and incorporated, to be in line with the considerations to be taken into account when applying to the Commission for a Scheme changing the trusts of a charity when they can no longer be achieved.
  • The rules relating to the disposal of charity land have been relaxed to the extent that charities will now have access to a wider pool of professional advisers who can provide a report on the merits of a proposed disposal of charity land and these professional advisers can be members of the board or a charity employee thereby reducing what can sometimes be an overly‑burdensome obligation for small charities in particular to obtain a qualified surveyor’s report before disposal.
  • And finally, the statutory definition of permanent endowment for the purposes of considering restrictions under the Charities Act has been changed to only cover investment permanent endowment (“PE”) and the rules relating to when PE can be used without Charity Commission oversight have been relaxed. For example, it allows charities to borrow from their PE so long as it is paid back within 20 years and subject to certain conditions about the amounts that can be borrowed. It also allows PE to be used in limited circumstances for social investments that may have a negative or uncertain financial return.  Currently rules do not allow for the release of PE investments that may result in a loss as this would be effectively spending PE.

The changes are a step in the right direction and will help charities of all sizes, but particularly smaller charities, to navigate the regulatory framework a little easier.

If you have any queries regarding the issues raised in this article or otherwise require Charity Law and governance advice, please do not hesitate to contact Katie Dawson.

Please note this information is provided by way of example and may not be complete and is certainly not intended to constitute legal advice. You should take bespoke advice for your circumstances.

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