Cy-pres schemes and the proceeds of fundraising appeals

The Law Commission published its report on Technical Issues in Charity Law in September 2017 following a public consultation which revealed that many charities struggle with a range of technical issues in the law leading to unnecessary expense and preventing charities from dedicating their full resources to the public good. On 22 March 2021, the Government published its long-awaited response to the Law Commission’s recommendations and accepted most of the recommendations.

Here we focus on the response regarding cy-pres schemes and the proceeds of fundraising appeals.

Many charities no doubt wince when hearing the words ‘cy-pres’.  With understandable reason – the process for applying for a cy-pres scheme involves cost and time and can be a frustrating time for charities who are unable to use funds raised, due to their restricted purposes.

Unlocking restricted funds
The cy-près doctrine applies both to lifetime gifts and gifts by will, and also, in the event that appeal funds are raised and cannot be used for the original fundraising purpose.

Surplus funds - Perhaps the fundraising appeal exceeded the appeal target and there is a surplus of funds.

Failed appeals - Or perhaps utilising the appeal monies for the original purpose of the fundraising appeal is no longer possible. For example, if the appeal was to raise funds to build a new charity centre and post-appeal, planning permission for the new charity centre was not given. In such a situation, the charity may wish to utilise the monies to improve an existing building.

In both circumstances, the donors have given funds for a purpose which is no longer being pursued by the charity. The current law requires charities to contact each and every identifiable donor to offer to return their donation (at which point many charities will ask for consent for the new purpose). Or, in the case of unidentified donors, by way of public advertisement and enquiries. The effort involved in both of these processes is often disproportionate to the size of the individual donations, thus charities utilise the cy-pres scheme to allow them to unlock the restricted funds and use them for a new purpose, circumventing the need to contact each and every donor.

The Law Commission recommended thresholds below which charities would not have to contact donors if a fundraising campaign to which they contributed had not met its target. They also recommended a simplification of the process that the law requires when contacting donors. The Government agreed that the recommendations would protect donors’ wishes while reducing administrative burdens on charities.

The accepted recommendation means that charities no longer need to contact a donor to offer to return the donation (or to ask for a change in purpose) so long as:-

(a) the donation does not exceed £120; and

(b) the trustees reasonably believe that the total given by the donor to the fundraising appeal over the financial year did not exceed £120; and

(c) the donor has not stated that the donation must be returned if the specific charitable purposes fail.

This is the removal of a major administrative burden for charities and is a very welcome development.

It should be noted that said that failed appeals can be avoided by ensuring that full and express provisions for failed fundraising appeals are set out in fundraising literature. Fundraising teams should, as a matter of course, cover off will happen if their appeal raises insufficient, or surplus, funds. Preparing fundraising literature carefully to pre-empt the possibility of a failure or surplus provided the best approach to dealing with this matter, under the existing law and even still, under any new law passed to account for the recommendations.

For more information

If you have any questions in relation to any of the matters covered above, please do contact your usual contact in the charities team or Natalie Barbosa.

The full list of our series of ebriefings can be found below: