A number of significant changes to the Charities Act 2011 will come into force this Thursday (7 March) in the third instalment of the Charities Act 2022’s implementation.
The Charities Act 2022 makes technical changes across many areas of charity law and is being implemented in phases, primarily to allow the Charity Commission to prepare for them.
The first and second phases came into force in October 2022 and June 2023 respectively. We were expecting the third phase to be the last, but the delayed implementation of powers relating to ex gratia payments means that there is still more to come.
To find out how the changes in the third phase could affect you, take a look below.
Changing governing documents
Unincorporated charities, charitable companies and CIOs have new rules on amending their governing documents.
Under these rules:
- Trusts and unincorporated associations will have a broad, new statutory power to amend their governing documents. Under the previous regime the statutory power(s) available depended on the size of the charity or the type of change which the charity wished to make. Unfortunately, in the interests of streamlining, useful powers for small unincorporated charities to change their purposes and for certain unincorporated charities to transfer funds will be repealed. But, on the whole, the new regime will make it more straightforward for many unincorporated charities to change their governing documents when they cannot or do not want to rely on an express amendment power.
- Under the new amendment power, Charity Commission consent will be needed for certain changes including changes to the unincorporated charity’s objects, winding up clause, provisions relating to trustee or member benefits, permanent endowment restrictions and changes to third party rights and powers (unless they consent or no longer exist).
- Charitable companies, CIOs and unincorporated charities will all be subject to a new statutory test which the Charity Commission will apply when considering a request to give consent to amend their charitable objects. On the face of it, the legal test looks slightly stricter than the test which applied when charitable companies and CIOs sought consent for objects changes under the previous rules.
Charity Land
The following delayed reforms to rules on the disposal of charity land will be force:
- Changes to the statements and certificates to be included in property contacts and deeds, which are intended to give better protection to purchasers and to simplify the process for charities to confirm compliance with the restrictions on disposals in the Charities Act 2011. Charity trustees will no longer need to certify compliance. Instead, a statement will be included in the transfer deed or other document effecting the disposal confirming that the charity has complied with its obligations. This will also appear in any contract to bring about the disposal. This also includes the removal of the need for certificates in mortgages and legal charges, again simplifying the method of confirming compliance and the document signing process for charities. Many charities may wish to consider reviewing their signing procedures now, given the removal of the need for trustee certificates.
- Provisions clarifying that disposals made by liquidators, provisional liquidators, receivers, mortgagees or administrators do not require compliance with the Charities Act 2011 (given other statutory requirements on such office holders on any disposals). The slightly amended exemption for charity-to-charity disposals at less than best price (which is more a re-ordering of wording than any change in the law) also comes into force on 7 March.
NB. The changes in relation to the Universities and College Estates Act 1925 will now come into force on 19 May 2025.
Charity mergers
When charities merge, legacies left to a charity which has been wound up as part of the merger can be lost, unless the merger is registered on the Charity Commission’s Register of Mergers. But there were some problems with the current Register of Mergers provisions such that not all legacies were protected.
The new rules provide that if the merger is registered on the Register of Mergers, the merged charity is treated as continuing to exist despite the merger. This is intended to resolve issues in the law in relation to the current Register of Mergers provisions with a view to ‘saving’ legacies might otherwise be lost and reduce the need for charities to retain ‘shell’ charities on the Charity Commission’s Register of Charities.
Our view is that charities will still need to consider on a case-by-case basis whether the Register of Mergers provides adequate protection or if they should retain a shell charity to avoid potential legacies being lost.
Trustees
The Charity Commission will be able to authorise a charity to remunerate trustees who have already carried out work for their charity (or to authorise the trustee to retain a benefit already received in connection with that work) where it would be inequitable for the trustee not to be remunerated. This avoids the need to go to the court for authorisation.
The Charity Commission’s new power is discretionary and so it remains to be seen how the Commission will exercise it in practice.
The Charity Commission has another new power to fix defective (or potentially defective) trustee appointments. This could help charities whose board of trustees has been constituted incorrectly, for example, because the rules for appointing or electing trustees have not followed.
The Commission generally expects trustees to resolve issues themselves where they can and so it will be interesting to see how the Commission uses its new power.
If you have any questions on the new changes and how these may affect you, please contact Lucy Rhodes, Laura Soley, Jamie Huard or your usual contact at Bates Wells.