What Does the Lockdown Mean for Your Charity's Services and Fees?

Some charities face the dilemma of what to do where they have been paid for services they can no longer provide, or can only provide in a modified way.

Typically, the issue will be setting or revising fees for periods during which the future is uncertain. Coronavirus (COVID-19) and the mitigation measures imposed have proved unpredictable over the annual, quarterly or termly horizons over which many charities charge. Having enough information is a key principle of trustee decision-making.

This element of unpredictability may mean that trustees of charities that charge at these intervals should avoid making fixed commitments about fees. Whether the solution is to wait and see before acting, or to make a more nuanced commitment about fees which depends on outcomes, depends on circumstances. Where possible, fee reductions should take the form of a variation to the contract, with charities varying what they promise to provide in exchange for varying the fee.

Rather than fixing the reduction, the variation could address future uncertainty by committing to calculating a reduction rather than committing to a given amount, and trustees should creatively think around the issue to make sure they have considered the best options.

Should You Reduce Your Fees?

The question whether fees should be reduced can be addressed in five stages:

• what services are promised in the contract and whether it provides for a reduction
• the statutory right customers (beneficiaries) have under the Consumer Rights Act 2015 to a price reduction by an appropriate amount if the services don't conform to the contract
• your charity's governing document, what it says your purposes are, the trustees powers and restrictions
• Charity Commission guidance on public benefit, PB2
• whether the interests of your charity require a reduction to be made, for example to attract and retain beneficiary clients now and in the future given the more limited provision, or to preserve relationships with funders or donors

Your Legal Obligations

Generally, a charity should comply with its legal obligations. To fail to do so, apart from being a breach by the charity of those obligations, could be misconduct by the trustees and a cause for regulatory concern. What is required by the contract and by consumer law is of central importance.

Guidance on public benefit PB2 is likely to be relevant to all decisions on fees and the trustees are under a statutory duty to have regard to it when it is relevant. If the trustees wish to go on to consider a fee reduction other than one simply to meet legal compliance requirements, they should check their governing document for the powers available and any restriction on them.   

Such a decision is one which must be taken in the interests of the charity. The interests of the charity are its interests in pursuing its purposes and direct reference to the governing document will serve as a refresher. Trustees will need to consider factors which are relevant to the charity's interests.

Every charity will be different and we can advise, but in general, it will need careful cost-benefit analysis and financial projections as well as considerations of expectations or promises already made and the impact of any reduction on fee-payers' future expectations.

Trustees should be careful not to stray into considerations which are not relevant either to the job of establishing their legal obligations, or to their decision about the interests of the charity. For example, they should not base their decision on notions of what is right or fair, nor think in terms of goodwill gestures - however attractive they may seem. A decision based on those reasons would not be one that was made exclusively in the interests of the charity.

A further complicating factor can be the situation where fees have already been invoiced or paid in advance. Any reduction, superficially at least, looks like the charity giving away its funds either by crediting invoices or returning money. Provided the trustees have made a sound decision based and based only on legal requirements, powers and the interests of the charity, the fee reduction agreed will be proper, even if it involves cancelling invoices or repayment.

If you need legal guidance on changes to your charity's fees and services, please get in touch with Andrew Wherrett in our Charities team on 07787 746721, or complete the form below.