Charities Act 2022: third phase of changes to charity law come into force

The Charities Act 2022 has already made some important reforms to charity law. The third phase of implementation came into force on 7 March 2024.

In this article, we explore the key changes and their implications. To learn more about the changes which have previously come into force, please see our series of articles here.

Charities Act 2022 recap: what’s happened so far?

The Charities Act 2022 is a significant piece of amending legislation that has brought into effect a number of changes and reforms to charity law. Its aim is to make charity law more user-friendly and, crucially, to reduce the administrative burden facing charity trustees. It works by amending certain provisions of the Charities Act 2011.

So far, we have seen two phases of implementation of the Charities Act 2022 on 31 October 2022 (see our article here), and 14 June 2023 (see our article here). The third phase of implementation came into effect yesterday, 7 March 2024.

Which provisions have now been implemented?

The third phase of implementation brings into force changes to provisions in the Charities Act 2011 relating to the following key areas:

1. Amending the governing documents of charities.

2. Certain changes to exceptions that apply to the usual rules on disposal of charity land (although, some of the amendments in this regard have been delayed until 19 May 2025, due to delays to related amendments to the Universities and College Estates Act 1925).

3. Changes to the information required to be included in instruments concerning the disposal of charity land.

4. Introduction of important new powers of the Charity Commission, notably relating to their powers to appoint charity trustees and a new power to retrospectively authorise personal benefits to charity trustees.

5. Changes relating to charity mergers, in particular amendments to the statutory saving provisions in respect of legacy income where a charity merger has taken place, aimed at closing the legal loophole that has resulted in some legacies being lost in these circumstances.

Amending governing documents: trusts and unincorporated associations

Over two thirds of the charities on the Register of Charities are unincorporated. The process to amend their governing documents has always been complex, with different powers available for different sized charities, and with different rules applicable depending on the nature of the changes being made. The process was also markedly different to that applicable to charitable companies and CIOs.

In an effort to achieve greater consistency in the process applicable across all legal forms, a new statutory power (section 280A) has been introduced. Section 280A provides unincorporated charities with a wide statutory power to amend any provision in their governing documents by resolution of the trustees, provided that certain types of amendments require the prior consent of the Charity Commission.

In line with the “regulated alterations” regime for incorporated charities, when using the new power of amendment under s280A, unincorporated charities need to apply for Charity Commission consent to amend the charity’s objects, provisions relating to the benefits that charity trustees or members (or persons connected with them) may receive, and provisions relating to the application of property on dissolution. In addition, there are other changes that also require consent, including making changes that affect third party rights and amending restrictions that make property permanent endowment.

A section 280A resolution can be used where an unincorporated charity does not have an express power of amendment within its governing document, or it can be used in addition to any such power. For charitable trusts, the resolution will need to be passed by not less than 75% of the charity trustees. For unincorporated charities with a separate voting membership, the resolution must be passed by a simple majority of the trustees and a resolution of the members (by no less than 75% of those present at a meeting of the members, or unanimously if passed outside a meeting).

It is hoped that with the introduction of section 280A, unincorporated charities will find it easier to amend their governing documents when they do not have an express power to do so (or the express power does not go far enough).

How do charity trustees use the new power in practice?

If you are a trustee of an unincorporated charity and are looking to change your governing document but do not have an express power of amendment, you can pass a section 280A resolution (following the Charity Commission’s guidance) to do so. If you wish to make changes which require Charity Commission consent, you can pass a resolution conditional on such consent being received (so that the changes come into effect once that consent has been received) or pass the resolution following receipt of the consent.

Applications for consent from the Charity Commission must be submitted via the Charity’s “My Charity Commission Account” portal.

Can smaller unincorporated charities still amend their objects without Commission consent?

It is no longer possible for smaller charities to use a statutory power to amend their objects without Charity Commission consent, because section 275 of the Charities Act 2011 has now been repealed.

Any resolutions passed before 7 March 2024 under the now repealed section 275 will continue to be dealt with under the old provisions. However, from 7 March onwards, all unincorporated charities need to use the new s280A regime to amend their objects.

New statutory test to amend charitable objects

There is now a new statutory test that will apply to charitable companies, CIOs and unincorporated charities wishing to amend their charitable purposes. The Charity Commission will apply the new statutory test when considering applications.

In brief, the new test requires the Commission to have regard to the original charitable purposes, the desirability for new purposes to be, so far as reasonably practicable, similarto the purposes being altered, and the need for a charity to have objects that are suitable and effective in light of current social and economic circumstances.

Charity land disposals

The following changes have now been implemented as part of the third phase (these were delayed to accommodate changes at HM Land Registry and its associated guidance).

1. Documentation

There is no longer a requirement for charity trustees to certify compliance with the Charities Act 2011 when disposing of charity land. The new requirement is much simpler and requires contracts and documents effecting any disposal of charity land to include the same statutory statements. This means that the requirements to comply with the provisions of the Charities Act 2011 are the same at both key stages of a transaction (namely exchange and completion).

2. Exceptions to restrictions

New provisions make it clear that a disposition of charity land by a liquidator, receiver, mortgagee or administrator is exempt from the rules on disposing of charity land under the Charities Act 2011 (as those individuals are already subject to professional obligations and duties to seek the best terms for a disposal).

3. Excluded dispositions

Amendments have been made to make it clearer when transfers of land from one charity to another are exempt. If the disposal to another charity is intended to further the transferring charity’s purposes, then the exemption will apply, but where the disposal is financially motivated (either with a view to achieving the best price or by way of social investment) the restrictions on disposal of charity land under the Charities Act 2011 will apply.

Charity Commission powers

The Charity Commission now has a range of new powers, some of which we expect will be particularly useful to our clients.

1. Trustee appointments

If doubt has been cast over the validity of a charity trustee appointment, the Charity Commission now has the power to make an order to confirm that the appointment was valid. This power extends to the Charity Commission confirming that certain acts carried out by the trustee in question were also valid.

2. Trustee benefits and payments

The Charity Commission has a new power to retrospectively authorise payments or benefits to charity trustees which were not properly authorised in advance. The power is discretionary, and the Charity Commission will need to be satisfied that it would be inequitable for the trustee not to be remunerated. It is also not a substitute for following the proper process and obtaining approval in advance of conferring a benefit to a trustee.

3. Power to require public notice

The Commission’s power to require public notice in respect of applications has been broadened, and now applies to applications to make amendments to governing documents (amongst other things).

The Birketts view

The third phase of implementation of the Charities Act 2022 arguably represents the biggest set of changes implemented to date. In particular, the changes introduced to bring greater consistency to the process for amending the governing documents of charities are very welcome and should considerably simplify (and hopefully speed up) the process of making “regulated alterations”.

The changes are a positive step forward for the sector and should be helpful in simplifying some of the more common matters that charity trustees deal with. In particular, the new power for unincorporated charities to amend their governing documents should save considerable time and cost.

The Charity Commission has published new and updated guidance to reflect the changes that have now been introduced. New CC36 guidance on updating charity governing documents has been divided into three sections, for charitable companies, CIOs and unincorporated charities. It is notable that Royal Charter charities are simply referred to general guidance and there appears to be no guidance available at all for statutory charities.

In keeping with the Commission’s new approach to its published guidance, the text is concise and in plain English, which makes it easy to understand and follow. However, this does on occasion result in areas of confusion. In particular, we note that the Charity Commission has included the following statement in all of its new guidance documents:

“If it becomes clear that, for example, you cannot further your charity’s purposes effectively, cannot further them at all or cannot further them in part, you must take steps to change them.”

Whilst it is, of course, necessary to amend a charity’s objects if it has become impossible to advance them, we disagree that there is a requirement to amend the objects where only part of the objects has become impossible to advance. It is very common for charities to have several limbs to their objects, and there is no legal requirement for all limbs to be advanced at all times. Whilst a charity might wish to tidy up their objects and remove a redundant limb where it is no longer possible or effective to advance, there is no legal requirement to do so. However, the Commission’s guidance in using the term “must” suggests that this is a requirement.

Another area where the guidance is not as helpful as it could be is in relation to the process and timing of seeking member approval in respect of regulated alterations:

“For regulated alterations, you should ask for Commission authority before you agree the change with your charity’s members. This will save you the costs of organising a meeting to vote on a change which the Commission does not authorise.”

Whilst this might be advisable in some contexts, given that there are often delays with processing times at the Charity Commission, we anticipate that many charities with a wide membership will wish to seek approval from their membership at an AGM, conditional upon obtaining Charity Commission approval, rather than wait and hope that the Commission’s approval comes back in time for the notice of AGM to be circulated. The use of the term “should” in the Commission’s guidance suggests that the approach proposed in the guidance is recommended best practice. However, there is no reason why conditional resolutions should not be passed where it is preferable from a timing perspective.

It will be interesting to see how the Charity Commission’s systems adapt to the new processes. In particular, we will be keeping a close eye on the Charity Commission’s use of its new powers, and the experience of unincorporated charities when looking to change their governing documents.

Should you require assistance with any of the topics covered in this article or would like to learn more about the changes to charity law, please do get in touch with the Charities Team and a member of the team will be happy to help. You might also wish to register for our upcoming webinar on updating charity governing documents, where we will be taking you through the new process and providing our practical top tips.