The charity’s long-established governance structure, which reserves a majority of positions on its governing council for owners of seats at the concert hall, has been the subject of debate with the regulator for a number of years. The Attorney General’s decision serves as a fascinating reminder of the complexities of this matter and how aligning charity law requirements with established charities is not always straightforward.
Governance of the Royal Albert Hall
The Royal Albert Hall is a historic and unique registered charity officially known as the Corporation of the Hall of Arts and Sciences (the Hall). The Hall was incorporated in 1866 by Royal Charter, as amended by two Supplemental Charters and four Acts of Parliament.
We understand from its website and media sources that the Hall was initially funded by the sale of seats within the hall to ‘members’ (Seat-holders) in the form of 999 year leases. Owing to this funding structure (which has, no doubt, played a role in the growth of the Hall), Seat-holders have certain enshrined constitutional rights in the Hall’s governing documents. Most notably, Seat-holders have the right to appoint 19 of the 24 members to the Hall’s governing board (Council) from their number, including the President.
The Hall’s 300+ present Seat-holders are successors by inheritance or trade to the original subscribers and own approximately one quarter of the Hall’s seats on long leases. As the seats are constituted as property assets, Seat-holders have wide discretion over their seats. They can (and reportedly do) give tickets for their seats to charity, or to family or friends. They can also make an income from their seats through selling tickets at the box office for certain events in the Hall’s auditorium, or selling tickets via other methods for inflated prices. They can also sell their underlying leasehold interest for cash or other form of consideration, and make a ‘gain’ on the original capital. [Note: The number of Seat-holders engaging in some or all of these activities in practice is unknown to the writer and not the subject of this article.]
The Commission’s concerns
The Charity Commission has found it difficult to align modern charity law restrictions on trustee benefits and conflicts of interest with the Hall’s governance structure. In particular, the regulator has reportedly stated that there is a "real risk" that the Council will prefer the interests of Seat-holders to those of the charity. It has sought the Hall’s voluntary agreement to a governance restructure (for instance, by imposing a requirement that there should be a majority of non-Seat-holders on the Council).
After allegedly failing to come to a voluntary agreement, the Commission escalated the matter to the Attorney General in 2017. In January 2018, then Attorney General Jeremy Wright QC gave his consent for the Charity Commission to seek guidance from the charity tribunal about imposing changes to the governance structure. In March 2018, Wright QC withdrew this consent amidst alleged fears of a judicial review action against the decision.
The Commission referred the case to Michael Ellis QC (the current Attorney General) this year. Papers relating to the outcome of the case were not in the public domain at the time of writing. However, it is understood from media reports that the Attorney General concluded that some of the questions posed by the Commission did not fall within the scope of the Charities Act 2011 and others were not considered to be in the public interest.
It is clear that the Commission’s concerns surrounding the Hall’s governance have triggered some complex and unique charity law issues:
- Trustee benefits: Seat-holders (who also represent a majority on the Council) hold proprietary interests in the Hall in the form of long leases of seats which they can use as a source of financial income and/or as an investment through the sale of tickets or trade. While these rights are derived from property ownership (rather than any direct financial benefits received from the charity), it has been argued that the value of these rights is influenced by how the Hall is managed and programmed. There is a general principle in charity law which broadly provides that charity trustees cannot (directly or indirectly) financially benefit from their charity without consent from the regulator or the court. Governing documents of charities may contain certain carve-outs from this general principle which enable charity trustees to obtain limited benefits from their charity (such as reasonable rent for letting of premises to the charity). However, any carve-outs from this general principle cannot extend beyond the limited benefits that are permissible under charity law and the legal requirements on management of conflicts of interest (see (b) below). Some opponents of the Hall’s governance structure contend that, while the seats are proprietary interests, the value of those interests and any income and capital gains received from them ultimately derive from the endeavours of the charity.
- Conflicts of interest: One of the key reasons the Commission has viewed the governance structure of the Hall as problematic is that it appears to clash with key charity law requirements on management of conflicts of interest and loyalty. A conflict of interest or loyalty is any situation in which a trustee’s personal interests or loyalties could, or could be seen to, prevent them from making a decision only in the best interests of their charity. Trustees must manage these conflicts appropriately in accordance with the law and their constitution and, where necessary, withdraw from any decisions in which they are, or could be perceived to be, conflicted. The law recognises that there are some circumstances where a conflict is so serious that the trustees affected are unable to make their decision in the best interests of the charity, or could be seen to be unable to do so. Such circumstances can include where the trustees cannot act because the majority of the trustees are conflicted on a particular issue, or a large proportion of trustees have interests which conflict with those of the charity (CC29 guidance). In these circumstances, the Commission advises trustees to either i) take steps to remove the conflict; ii) require conflicted trustees to declare their interests and withdraw from relevant decisions; or iii) (where the conflict is particularly acute) seek consent from the Commission. Due to the fact that a majority of the Council are Seat-holders, the Commission has found it difficult to satisfy itself that conflicts can be properly managed through the current governance structure. On the other hand, some claim that the Hall’s governance structure is enshrined and ratified by law as it was established by the Hall’s charters as amended by acts of parliament.
It is clear that the Commission has found it difficult to align the above legal principles with the Hall’s governance structure. It is also clear that the Hall has inherited a complex and archaic structure enshrined by law, which has both contributed to the evolution and enormous success of the Hall and its charitable endeavours, and triggered questions from a charity law and regulatory perspective. It would be a daunting task to try to unpick the historic proprietary and constitutional rights of Seat-holders which have passed through generations. At the same time, the concept of a majority of trustees owning lucrative assets so closely linked to their charity is unusual and, in the opinion of the Commission, at odds with modern expectations.
The Commission appears to have now reached an impasse on this matter. We would be very interested to read the decision of the charity tribunal if it does reach that stage. However, given the past decisions of the Attorney General and the cost implications of going to tribunal, we speculate that some form of voluntary agreement is a more likely outcome. In the meantime, this fascinating case serves as a reminder of some key charity law requirements and how these can sometimes clash with the deeply entrenched constitutional and governance structures of long-established charities. We will certainly watch this space.
If you require any advice on any of the matters mentioned in this article, please get in touch with Sinead Corcoran or another member of the Birketts Charities Team.