Charity law update

The Charities Act

The Charities Act 2011 received Royal Assent on 14 December 2011 and will come into force in March 2012.

As a result, it will no longer be necessary for most charity lawyers to refer to the Recreational Charities Act 1958 and there will be less need to cross refer between the Charities Acts 1993 and 2006. But do not throw out your copies of the 1992 and 2006 Acts just yet.

The 2011 Act does not contain any of the statute law relating to the regulation of fundraising. Regulation of professional fundraisers and commercial participators remains in part 2 of the Charities Act 1992; regulation of public charitable collections remains in part 3 of the Charities Act 2006 (which has still not been brought into force).

While there are effectively no legal changes, the new Act is a weighty piece of legislation comprising of 358 sections and 11 schedules. By March 2012, charities and legal professionals alike will need to familiarise themselves with the new clause numbers and general feel of the Act.

The Charity Commission is already at work updating statutory references in its guidance. No doubt many conscientious charity lawyers will have spent the Christmas break memorising the new clause references.

For a brief destination table listing frequently used clauses and their location in the new Act, see www.anthonycollins.com.

'¦ and the review of the 2006 Act begins

As the 2006 Act is replaced by the 2011 Act it is also being reviewed. The review started just in time to meet the commitment made during the passage through parliament of the 2006 Charities Bill that the government would review the effectiveness of the Act five years after it came into force. That review has now begun led by Lord Hodgson of Astley Abbots. Several umbrella bodies including the Charity Lawyers Association and NCVO are performing parallel reviews or otherwise feeding proposals into the review. For further details, see the article on page 25-27.

No more hand holding

The Charity Commission has published its strategic plan for the period 2012-15.

It identifies two key strategic priorities:

• developing the compliance and accountability of the charity sector; and
• developing the self-reliance of the charity sector.

In dealing with these priorities over the period of the plan the commission is to focus in particular on risk, technology and operational effectiveness.

Commission staff, including Sam Younger, the chief executive, have made clear that the commission's new focus will mean that charities can expect less 'hand holding' from the commission. Charities can expect to be referred to guidance on the commission's website and an increasing number of the commission's services will, like charity registration, be delivered using the website. The commission has also warned professionals, including accountants and solicitors, to expect less support from commission staff. The new approach has already given rise to instances where commission case officers have rejected applications that would previously have been expected to succeed after negotiation. It is clear that lawyers approaching the commission will need to have done their homework.

Charities and business rates

The Charity Commission has been investigating this issue in response to concerns from a number of local authorities that some charities have entered into tenancy agreements with landlords of empty properties without having an intention to occupy. Charities have been warned that such arrangements may constitute business rate avoidance.

A mandatory relief to the payment of business rates of 80 per cent is available to charities where the property in question is used 'wholly or mainly' for charitable purposes. Charities are also able to apply for an additional 20 per cent discretionary relief meaning that many charities have complete freedom from the payment of business rates.

The Charity Commission is concerned that some charities are entering into arrangements with landlords of empty properties, despite having no intention to occupy the premises, with the aim of relieving the landlords of their obligation to pay business rates.

By comparison, the owner of an empty retail property is only eligible for 100 per cent relief for a period of three months, meaning many landlords are obliged to pay crippling business rates despite having no income from their property.

Such agreements can result in valuable benefits to both the charities and the landlords, particularly where the landlord making the business rate saving agrees to donate a portion of his saving to the charity. However, significant risks are involved and the investigation has highlighted the need for the trustees of charities to:

• be cautious and careful when considering entering such arrangements in order to avoid exposing the charity to the risk of being abused by a commercial entity;
• consider whether the tenancy agreement is for the exclusive benefit of the charity and serves its best interests;
• consider whether the property is actually required by the charity and is suitable for its needs;
• consider the potential liability to the charity in the event that the local authority refuses the discretionary 20 per cent relief; and
• take suitable legal advice before entering tenancy agreements.

Options for landlords

Entering into tenancy agreements with charities is not the only option available to landlords of empty properties who wish to mitigate their business rate liability. The 'meanwhile project' lead by the Development Trusts Association (now Locality) is striving to improve and benefit local communities by filling vacant properties for short periods of time until they can be used for a commercial purpose by way of a 'meanwhile lease'. The aim is that the empty property should be used in a way that benefits the community; for instance, creating a temporary art gallery. To find out more visit the Locality website: https://locality.org.uk/projects/project/

Alternatively, landlords can join the trend of the 'pop-up shop' by allowing their empty properties to be temporarily occupied as a shop. Over recent years both large retailers such as HMV and Superdry and small independent businesses alike have opened pop-up shops all over the UK.

Both options benefit landlords because:

• they will no longer have to pay empty property business rates;
• other expenses such as security costs and utilities will be covered by the temporary occupant; and
• it helps boost the local community as a whole by making the vicinity more appealing and attractive.

Further risks to charities

In this time of economic uncertainty, many rating authorities will be under pressure to protect their finances. Some rating authorities appear to be taking a harder line on discretionary rating relief. This presents a risk that discretionary relief will be withdrawn from non-charities such as community interest companies, those charities that use premises for administrative purposes or where the charity operates nationally and may find it difficult to demonstrate that its work benefits the local area.

Social value

The Conservative MP for Leamington and Warwick, Chris White, introduced the Public Services (Social Value) Bill, initially called the Public Services (Social Enterprise and Social Value) Bill, into the House of Commons on 30 June 2010.

The bill is aimed at practically supporting socially responsible business practices and to make the concept of 'social value' more relevant and important in the placement and provision of public services.

Since it was introduced, the bill has been heavily amended resulting in two of its original aims being removed in their entirety. Consequently, the bill will no longer place a duty on the secretary of state to publish a 'national social enterprise strategy' to encourage engagement in social enterprise; require local authorities to include proposals for promoting engagement with social enterprise in their area in their sustainable community strategy; or include a statement of the measures suggested to enable social enterprise to participate in implementing these proposals.

If passed in its current form, the bill will apply to contracts for services to which the Public Contracts Regulations 2006 apply, and framework agreements for services (but not call-off contracts under those frameworks).

It will not apply to contracts for goods or works except where they are included as an ancillary part of contracts for public services.

While the bill still has to get through the House of Lords, it seems likely that it will place a duty on contracting authorities entering into public procurement service contracts to give greater consideration to economic, social or environmental well-being during the pre-procurement stage.

This presents a significant opportunity to ensure that social value is embedded in procurement practice. It remains to be seen whether public bodies and civil society organisations will seize this opportunity.

Key challenges include:

• how to ensure that public bodies engage with social enterprises in the procurement of services;
• developing appropriate models and tools for commissioners to use in assessing social value; and
• enabling hard-pressed procurement staff in commissioning bodies to develop the knowledge and skills necessary to embed social value in their practices.

Fortunately there is plenty of good practice that can be drawn upon, the key being the development of clear policies that provide the justification for expanding the 'box' of what is procured.