Following implementation of the first tranche of provisions of the Charities Act 2022 on 31 October 2022, the eagerly awaited second tranche of provisions came into force on 14 June 2023. Charities will welcome in particular the relaxations of the regime governing disposals of charity land and increased freedoms for trustees in dealing with permanent endowment property contained in the latest provisions.

Changes in relation to the disposal of charity land

Charities are, other than in limited circumstances, required to take certain actions prior to the disposal of an interest in charity land (a broad ranging concept including sale and lease). This can be cumbersome, disproportionate, and time-consuming.

The new provisions in the Charities Act 2022 simplifies some of the requirements which should make disposals of interests in land easier and save on costs. The changes include:

  • Restrictions on dispositions only apply where the whole of the land is held a) by a charity for its own benefit or b) in trust solely for the charity. So, the Charities Act restrictions will not apply to a trustee disposing of property it holds for multiple beneficiaries where one or more of them is a charity or where the charity holds land in common with another
  • Previously, charities were required to obtain a written report from a "qualified surveyor", this requirement has been widened to obtain a report from a "designated adviser". This will allow trustees greater flexibility on who can advise a charity on the disposal (including certain estate agents and agricultural valuers)
  • Qualified trustees, officers and employees of a charity may also now provide advice on a disposal of charity land as the "designated adviser" provided that they meet the relevant requirements. However, the person advising should be made aware of the risks in doing so, particularly where the matter is complex or of high value and potential conflicts of interest must be managed. There is a clear benefit to the charity in relation to liability by obtaining independent advice, especially for complex or high value transactions
  • The requirement to advertise in the manner described in the Qualified Surveyor's Report (QSR) has been removed. This will give trustees greater freedom to determine how and when to market a property or to determine whether any marketing is required in consideration the nature of the transaction
  • Charity Commission consent is no longer required to grant a short, fixed-term or periodic tenancy (for less than one year) to an employee of a charity where the property is to be used as their home.

Alongside the implementation of these provisions, The Charities (Dispositions of Land: Designated Advisers and Reports) Regulations 2023 came into force on 14 June to replace the Charities (Qualified Surveyor's Reports) Regulations 1992. The new regulations simplify the content of the written reports that trustees are required to obtain under s.119 Charities Act 2011 (the old QSR). However, if a charity has already instructed a surveyor to prepare a report the old will regulations apply, even if the disposal will take place following implementation of the new regulations – which is helpful for charities which have already started the process.

The following changes were expected to come into force in June but have been delayed until a date "before the end of 2023" to give time for the Charity Commission to agree changes in procedure with the Land Registry. The changes yet to come into force are:

  • Changes to the statements and certificates required disposals of charity land and mortgaging of charity land
  • Provisions relating to the disposal of land by liquidators, mortgagees and administrators
  • Provisions relating to mortgages over charity land taken by liquidators, receivers, mortgagees and administrators.

Changes in relation to dealing with permanent endowment

Permanent endowment is property held by a charity which distinguishes between capital and income and contains restrictions on the expenditure of capital. The new provisions provide trustees with wider powers to access the capital of the fund giving trustees greater flexibility in dealing with a charity's resources. The changes include:

  • The threshold for the ability for charities to spend the capital of a smaller fund has been changed. Trustees can now resolve to spend the capital of any fund with an adjusted market value of not more than £25,000 without the requirement to obtain the consent of the Charity Commission
  • A statutory power has been provided to allow trustees to resolve to borrow up to 25% of the value of a permanent endowment fund to be repaid over a period of up to 20 years without the requirement for Charity Commission consent (although the Charity Commission will need to be involved if the trustees are unable to replenish the fund within the allowed timeframe)
  • Charities that have adopted a total return approach to investments further to s.104A Charities Act 2011, now have a statutory power to make social investments with a negative or uncertain financial return, provided that any losses are offset by other gains.

Other changes in the second tranche

Other changes brought in by the new provisions include:

  • Increasing the powers of the Charity Commission to direct a charity to stop using a working name (as opposed to the registered name of the charity) if it is too similar to another charity name or is offensive or misleading. The Charity Commission also has expanded powers to delay the registration of a charity with an unsuitable name and to exercise its powers in relation to the names of unregistered charities.
  • The definition of "connected persons" under the Act has been updated to remove outdated language such as the reference to "illegitimate children".

Third Tranche (expected by end of 2023)

Implementation of the third tranche of provisions has been delayed until sometime "before the end of 2023". The third tranche is expected to contain important provisions to simplify amending the objects and governing documents of unincorporated charities; close a loop-hole in relation to gifts to merged charities which will remove the requirement for charities to retain shell-charities post-merger to secure certain legacies; enhance the Charity Commission's powers to appoint and authorise the renumeration of charity trustees; as well as implementing the final changes in relation to charity land.

Amendments to the Universities and College Estates Act 1925 will now not likely come into force until 2025 and changes in relation to ex gratia payments are indefinitely delayed.

For more information on the implementation of the Charities Act 2022, please visit the GOV.UK website.

If you are seeking legal advice on how the changes brought by the Charities Act 2022 can benefit your charity or more generally, then please get in touch with Mark Honeywell.

This article is for general information only and reflects the position at the date of publication. It does not constitute legal advice.