The Act represents the culmination of the Law Commission’s charity law project which began in 2014 and implements recommendations made in our 2017 Report Technical Issues in Charity Law. The Act is the product of lengthy consultation and has been welcomed by the charity sector.
It will allow charities to be run more efficiently, striking a careful balance between cutting regulation to liberate charity resources and maintaining appropriate regulatory oversight and safeguards. The reforms will allow charities to be run more efficiently by empowering trustees and by reducing unnecessary bureaucracy, in turn enabling more funds to be used for charitable purposes. It promotes consistency in the law by streamlining a number of processes across the different legal forms of charities.
The changes the Act makes are technical but will have great positive impact on the sector by improving the ways in which charities are run. A few of the key reforms being introduced are outlined below.
Amending Governing Documents
The Act simplifies the processes for charities to amend their governing documents, including introducing a new statutory power for unincorporated charities to make amendments by resolution, aligning the amendment process as closely as possible across the different legal forms of charity. It also creates a new power for Royal Charter charities to amend their Royal Charter, subject to Privy Council consent.
Failed fundraising appeals
The Act will make it easier for charities to use the proceeds from failed fundraising appeals for other similar charitable purposes, which previously represented a significant administrative burden for charities. Prior to the reforms, if a charity fundraiser failed to reach its target, charities usually had to search for and contact donors of small amounts to ask whether they wished their donation to be returned. The reforms release charities from this unnecessary burden.
The Act allows trustees greater flexibility to make use of the charity’s permanent endowment, that is, assets held by the charity with restrictions on spending the capital. For example, it introduces a new power to borrow up to 25% of the permanent endowment fund subject to a 20-year repayment period. As well as empowering trustees to use permanent endowment in the best interests of their charity, the Act provides a clearer definition of permanent endowment promoting consistency and certainty in the law.
Several minor and technical changes are made to clarify and simplify the law relating to dispositions of charity land. The reforms remove a number of burdensome statutory requirements, for example, expanding the pool of professionals who can advise charities on land transactions, and enabling advice to be obtained in-house, saving charities time and expense.
Professor Nick Hopkins, Law Commissioner for Property, Family and Trust Law said:
“I am delighted that charities will benefit from our recommendations that have been implemented in the Charities Act 2022. The Act will help charities devote more time and money to their good causes, whilst maintaining the oversight needed to ensure public confidence. We were fortunate to be assisted throughout the project by detailed and thoughtful comments by consultees, and I thank them for their involvement and support.
Special procedure for non-controversial Law Commission Bills
The Act was introduced into the House of Lords under the special procedure for non-controversial Law Commission Bills which allows part of the debate on the Bill to be taken off the floor of the House and instead be heard in Committee.