
The monthly round-up from the Anthony Collins Solicitors charities team
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.
Permanent endowment is property belonging to a charity that cannot be spent. For trustees, it can be both a blessing and a curse depending on a charity’s circumstances. On the one hand, funds or property protected in perpetuity for the charity to use or, on the other, funds or property where the use is unhelpfully restricted and capital cannot be spent. The Law Commission Report recommended several changes that should clarify areas of confusion and, in certain circumstances, make the spending of permanent endowment easier.
Definition of permanent endowment
The definition of permanent endowment in Section 353 of the Charities Act 2011 is to be reformulated to remove its inconsistencies and lack of clarity. The revised definition will aim to capture any fund held subject to a restriction that the capital cannot be expended by any means. For example, a gift of shares subject to a restriction that only the dividends can be spent to further the purposes of the charity. The revised definition will make it clear that it does not capture special trust property where a fund is held subject to a restriction that it can only be expended on a specific purpose; or a fund held subject to a general restriction that only a certain percentage of it (whether capital or income) can be spent each year.
Spending permanent endowment
Charities face time when they want to spend permanent endowment funds for several reasons, for example:
Currently, sections 281 and 282 of the Charities Act 2011 allow, in certain circumstances, unincorporated charities to release permanent endowment and to spend the capital. The sections were drafted to cover example 1 above. The Government has accepted the recommendations of the Law Commission report to alter these sections. Several of the alterations will simply make the process easier and quicker to follow but the key alterations will be:
The effect of the changes should be to make the power to spend some permanent endowment more straightforward.
Borrowing from permanent endowment
The recommendation that trustees of charities should have a statutory power to borrow from the charity’s permanent endowment has been accepted. This new power will allow trustees to resolve to spend up to 25% of the value of permanent endowment subject to a requirement that they recoup the expenditure within 20 years.
This power is intended for ‘investment permanent endowment’ i.e. a fund of assets that produce an income to fund the charity’s activities where the charity can sell an investment in the fund to purchase another, but it cannot sell an investment and spend the proceeds to further its charitable purposes. It cannot be used to enable trustees to borrow from functional permanent endowment i.e. property that does not produce an income but is used by the charity to pursue its purposes.
The power will be available where the trustees are satisfied that borrowing would be expedient, and the trustees would be expected to consider the interests of both the charity and the available endowment fund (if different).
Social investment
The recommendation that trustees have a power, (once they have opted into the regulations governing total return of investment) to resolve that the permanent endowment restrictions be further released to permit them to make social investments, has also accepted. This means that trustees will be able to make 'investments' for a negative and uncertain financial return which would not otherwise be permitted as 'investments'. The aim of this is to allow trustees further access to funds to further their charitable purposes whilst protecting the enduring nature of the permanent endowment.
If you have any questions or would like assistance in relation to permanent endowment do contact your usual contact in our charities team or Edwina Turner.
The full list of our series of ebriefings can be found below:
The monthly round-up from the Anthony Collins Solicitors charities team
A party seeking to restrict another's commercial activities must consider whether such terms are normal in similar, factual and contractual circumstances.
This ebriefing considers the Government’s proposals for challenges, as set out in Chapter 7 of the Green Paper entitled 'Fast and fair challenges'.
We’re delighted to announce that we have been ranked in the top five national legal advisers in the Top 3000 Charities 2021 directory.
The Law Commission published its report on Technical Issues in Charity Law in September 2017 following a public consultation.
Changing charitable purposes and amending governing documents.
One of the stated aims of the Green Paper is “to deliver the best commercial outcomes with the least burden on the public sector".
The proposals concerning dynamic purchasing systems (DPS) and framework agreements are the most disappointing aspect of the Green Paper.
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