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Charity Law reform - the Law Commission's Consultation on Technical Issues

on Monday, 29 June 2015.

The Law Commission is consulting on proposals to reform various aspects of charity law.

If implemented, some of these reforms could have potentially significant implications for independent schools as charities.

The consultation forms part of the Law Commission's project on selected issues in charity law, which arise mainly from Lord Hodgson's review of the Charities Act 2006. VWV have been providing technical support to the Law Commission throughout the project and we are responding to the consultation, which closes on 3 July.

Of the various proposals for reform, the following are likely to be particularly relevant for schools:

Land Transactions

As schools will know, the current requirements they face when disposing of and mortgaging land can result in substantial professional costs and delays in land transactions. Measures are proposed to simplify these by repealing the general prohibition on disposal without an order of Charity Commission and replacing this with a duty to obtain and consider appropriate advice on the transaction unless trustees consider such advice is unnecessary. The new duty would apply to all kinds of disposals including sales, leases and mortgages.

The reforms would mean that instead of having to obtain a surveyor's report on any disposal or advice on prescribed matters on any mortgage of land, Governors could decide whether to obtain advice and what kind of advice would be appropriate.

It is also proposed to abolish:

  • the additional restrictions which require charities to give public notice of disposals of designated land
  • the requirements relating to disposals to connected persons, meaning that leases to a school's trading company or Assured Shorthold Tenancies to staff would not require an order of the Charity Commission

Permanent Endowment

Schools with permanent endowment may be given additional flexibility to spend this if the proposed reforms are implemented.

There are also proposals to create a new form of permanent endowment (provisionally named a 'preserved endowment fund'). This would enable any school which opted to convert its permanent endowment into the new form to use the capital of the fund (including by spending it) while ensuring that the real value of the fund was maintained in the long term.

Royal Charter and Statutory Charities

Schools incorporated by Royal Charter and those formed by Act of Parliament should find it more straightforward and less costly to make changes to their constitutions if the Law Commission's proposals are adopted. These include a power to make 'minor' amendments without the consent of the Privy Council or Parliament.

Ex Gratia Payments

The Law Commission proposes that trustees should have a statutory power to make small 'ex gratia' payments (payments which they feel morally obliged, but have no legal duty, to make) without Charity Commission authorisation. For example, this may enable schools to make small payments to members of staff (e.g. to recognise their contribution to the life of the school) without the Commission's consent.

For further information, please contact Rachel Tonkin in our Independent Schools team on 0117 3145397.

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