Supporting charities with better law

The 370,000 charities in England and Wales are facing unnecessary administrative and financial burdens because of inefficient and unduly complex law.

Lord Hodgson’s 2012 review of the Charities Act 2006 concluded that technical problems in various areas of charity law are causing difficulties for charities and diverting resources away from their charitable activities. Following the existing rules can be costly in terms of both money and time, and can prevent trustees from making the best use of charity funds.

In a consultation opening today the Law Commission is asking about a range of possible reforms to charity law. Among the areas being considered by the Commission are the use of permanent endowment, protection of gifts to merged charities and sale of charity land.

Some charities have permanent endowment – funds that cannot be spent to further a charity’s purposes and that must be retained “pound for pound”. These restrictions can be a legal straitjacket for charities, preventing them from spending capital to support their activities during periods of low income or responding to immediate need such as a natural disaster, even if they can replenish the fund in future years. The Commission is asking whether the aims of the current rules can be achieved while also giving charities more flexibility.

The Commission is also asking whether there are alternatives to the similarly restrictive rules governing funds left to a charity that then merges with another. To keep the gift, a merged charity must often spend money and effort setting up and maintaining a shell organisation in the original name, appointing trustees, and filing annual accounts.

The rules that govern what charities must do when they sell their land also place unnecessary burdens on charities, according to the Commission. Under existing rules trustees must commission and pay for a full, detailed surveyor’s report, whether the land is a small patch worth a few hundred pounds or a development site worth millions, and even if the report would not be helpful to the trustees in deciding what to do. The Commission is asking whether trustees should be allowed to use their judgement and decide for themselves what level of advice is reasonable and appropriate for each circumstance.

Professor Elizabeth Cooke, Law Commissioner for property, family and trust law, said:

“Charities make a special and valuable contribution to society. Registered charities alone rely on a force of almost 950,000 trustees. The law must help charities make best use of their trustees’ energy and time, which is given voluntarily, and of charitable donations.

“The existing law can divert charities’ resources – both financial and human – from what should be their principal concern of achieving their charitable objectives. Our aim is to provide clear and sensible rules that remove unnecessary regulation while safeguarding the public interest in ensuring that charities are properly run and free to do their work.”

The consultation is open until 3 July 2015. The accompanying paper, Technical Issues in Charity Law, is available on lawcom.gov.uk

Notes for editors
1. The Law Commission is a non-political independent body, set up by Parliament in 1965 to keep all the law of England and Wales under review, and to recommend reform where it is needed.
2. Lord Hodgson of Astley Abbotts “Trusted and independent: giving charity back to charities – review of the Charities Act 2006” (July 2012). TSO (2012). ISBN 9780108511875
3. For more details on this project, including full terms of reference, visit lawcom.gov.uk (see A to Z of projects > Charity Law).
4. For all press queries please contact:
Phil Hodgson, Head of External Relations:  020 3334 3305
Jackie Samuel:  020 3334 3648
Email:  communications@lawcommission.gsi.gov.uk