Update on the Charities Act 2022 - Part 2

In April 2022, the Department for Digital, Culture, Media and Sport set out a plan for phased implementation of the Charities Act 2022 (the “2022 Act”) commencing in Autumn 2022 and continuing in Spring and Autumn 2023.

Following our initial review of those provisions of the 2022 Act which came into force in Autumn 2022 (which can be found here), this note summarises the changes that came into force in June 2023.

Permanent endowment

The 2022 Act amends the definition of ‘permanent endowment’. Previously, the Charities Act 2011 (“the 2011 Act”) provided that a charity was treated as having permanent endowment unless all property could be expended without distinction between capital and income. Now, property is considered ‘permanent endowment’ if it is subject to a restriction on expenditure which distinguishes between income and capital.

The powers to spend permanent endowment have, broadly, been amended as follows:

• The requirement for Charity Commission consent to release permanent endowment now only applies to permanent endowment with a value of more than £25,000.
• Where Charity Commission consent is required, the Charity Commission now has 60 days to confirm whether it agrees or disagrees with a trustees' resolution by contrast with 90 days under the 2011 Act.
• Company charities are now permitted to exercise the power to release permanent endowment where previously the powers were only exercisable by charities which were not companies or other bodies corporate.

In addition, the 2022 Act has introduced two new powers relating to permanent endowment:

1. Trustees now have a power to borrow from permanent endowment, subject to a number of safeguards including:
   
   1. The amount borrowed cannot exceed 25% of the value of the permanent endowment;
   2. Any amount borrowed must be recouped within 20 years (the “relevant period”). In addition, the trustees must be satisfied that there are arrangements in place to enable the amount borrowed to be repaid within the relevant period before borrowing from the permanent endowment; and
   3. The trustees must seek an order from the Charity Commission following the exercise of the power if they consider that it will not be possible to repay their borrowing within the relevant period.

   These powers are subject to any existing power to borrow contained in the charity's constitution.

2. Trustees may use permanent endowment to make social investments. A social investment is an application or use of funds by a charity carried out with a view to directly furthering the purposes of the charity and achieving a financial return for the charity. In order to do so the charity must have adopted a total return approach to the permanent endowment. Any losses sustained must be offset against other gains.

Charity land

Under the 2011 Act charity trustees were required to obtain advice from a qualified surveyor who was a member of the Royal Institution of Chartered Surveyors prior to a disposal or mortgage of charity land. However, the pool of “designated advisers” has been broadened to include the following individuals:

• Fellow-grade members of National Association of Estate Agents Propertymark (the professional membership scheme for estate agents run by Propertymark);
• Fellows of the Central Association of Agricultural Valuers; and
• Appropriately qualified charity trustees, employees and officers.

A designated adviser must certify that they:

• have ability in, and experience of, the valuation of land of the particular kind, and in the particular area, in question; and
• do not have any interest that conflicts, or would potentially conflict, with that of the charity.

The number of matters required to be considered in an adviser’s report has been reduced. Under the new Regulations, the report must deal with the following issues:

1. the value of the relevant land;
2. any steps which could be taken to enhance that value;
3. whether and, if so, how the relevant land should be marketed;
4. anything else which could be done to ensure that the terms on which the disposition is made are the best that can reasonably be obtained for the charity; and
5. any other matters which the adviser believes should be drawn to the attention of the charity trustees.

The following additional changes regarding charity land under Part 7 of the 2011 Act have also been introduced.

• The Act clarifies that the charity land provisions will only apply to land held ‘by the charity solely for its own benefit’ or ‘in trust solely for the charity’. This means that the charity land provisions no longer apply where land is held as nominee or in trust for multiple beneficiaries which may be relevant in probate situations.
• Employees of the charity are excluded from the definition of ‘connected persons’ where the disposal is the grant of a residential tenancy by the charity to the employee for one year or less. This means that charities will no longer be required to obtain consent to such tenancies from the Charity Commission.

Charity names

Under the 2011 Act, the Charity Commission had the power to direct a change of a charity’s formal name in certain circumstances. The Act has added the term ‘working name’ and has extended the Charity Commission’s powers. Now, the Charity Commission has the power to direct a charity to; (1) stop using its working name as well as its formal name; and (2) change its formal or its working name when it is too similar to another or is offensive or misleading. In addition, the Charity Commission now has power to delay the registration of a charity if it has given a direction requiring the charity to change its name.

We will report in due course on the further changes to be implemented later in 2023. In the meantime, do let us know if you have any queries around any of the new provisions.