Charity Trusteeship – Avoidable Pitfalls for Local Authorities
25th March 2010
Councils often become sole trustees of local charities, but it is a difficult position for them to find themselves in. Hardly a month goes by without new accusations in the press of a local authority trustee acting in breach of trust or failing to deal with resulting conflicts of interest. It is particularly difficult for councils that are unaware, until it is too late, that a particular piece of land, such as a recreation ground or heritage asset, is subject to charitable trusts.In this briefing, we describe the issues facing local authority trustees by looking at three recent cases. We then use the latest of these examples, the Kidd Legacy in Dartford, to show that the picture is not as bleak as it might be: that there are actually a number of practical measures councils can take to avoid similar difficulties.
Three recent examples
When Southwark Council decided to close Livesey Museum and sell its assets, the council overlooked its role as sole trustee of the charity. When local residents complained to the Charity Commission, the sale of the property was stopped and a great deal of negative publicity was generated. Southwark Council is now involved in costly and time-consuming consultation with the Commission and local residents on the future of the museum.
In Birmingham, the council was accused of abusing its position as sole trustee by failing to use Highbury Hall for charitable purposes, failing to pay rent to the charity and allowing the historic building to fall into disrepair. Again, the Commission intervened and the council was widely criticised for its conduct. Birmingham City Council is now tied up in lengthy discussions about the proper use of the property and how it can manage simultaneous roles as local authority and sole trustee for the future.
Finally, in Dartford, the council sold land it held as sole trustee for a charitable trust (the Kidd Legacy) to a local developer. Doing so, the council was found to have acted in breach of trust. Although the Commission was sympathetic to the council in this case, local residents appealed the Commission’s approval of the sale to the Charity Tribunal and the council has suffered continuing bad publicity. The Tribunal has now directed Dartford Council and the Commission to work together to establish a way for the council to avoid such conflicts of interest in future.
What councils can do
Many of these problems are avoidable. The last of these cases, the Kidd Legacy, actually illustrates some of the ways that local authorities can avoid getting into difficulties - and in some circumstances even dispose of charity assets - without generating unnecessary legal disputes and inevitable public criticism. The lessons from these cases are summarised below under 5 main headings:
1. Establish how the property is owned
The first and most important thing to do is to determine how the property is held and in particular, whether there are any restrictions on how it may be used and disposed of. It is important to be aware that, where the land is registered, any restrictions on the title will not necessarily include, or even refer to, the terms of charitable trusts. To confirm this point, it may be necessary to go back to the original conveyance; with unregistered land this will be even more important.
Next, if in doubt, seek expert legal advice! In Kidd, one of the problems for the council was that its regular legal advisors, despite purporting to be “charity specialists”, somehow missed the fact that the land was held on a charitable trust.
2. Assess restrictions on the use of property
If the land is held on trust, the trustee(s) must, of course, observe the terms of that trust. For example, land left for the purposes of recreation must be maintained and made available for those purposes. Ignoring restrictions on the use of charitable property will simply build up future problems, including potential liability for breach of trust. In many cases, charity law specialists will be able to suggest, sometimes in concert with the Charity Commission, alternative ways of complying with the terms of the trusts or even ways to dispose of the property altogether.
3. Consider whether disposal is appropriate
Dealing with the issues described above may offer unexpected and welcome outcomes. Looking at the terms of the original trust may reveal a means of selling property or an occasion to wind it up altogether. Where a charitable trust is insolvent, it may be permissible to sell some part of its property to generate income for the remainder. Even in cases where the trust is tied to a particular piece of land or other property in perpetuity, it may be permissible to make alternative property available. Again, seeking expert advice in advance will allow councils to establish a clear plan of action, minimising the risk of legal challenge and adverse publicity.
4. Manage conflicts of interest
Councils are best advised to govern charitable trusts by means of an independent committee exercising the delegated powers of the council; sometimes a better bet would be to transfer or hive off the property to a new corporate charity set up for that purpose. Such an arrangement offers protection from accusations of failing to consider the trust’s needs separately to those of the council. Charity Commission guidance requires that a quorum of independent people sit on these committees. In practice councils are likely to co-opt members of the local community to this role, but they may find it difficult to obtain people who are not conflicted (i.e., not otherwise involved in council business) and yet who will be cooperative and sensitive to the council’s aims.
However, even if councils adhere to published guidance on this subject[1], they may still be open to criticism. The Kidd Legacy case highlighted the shortcomings of this guidance, which prevents, for example, conflicted members of committees governing a trust from voting on corporate business of councils, but not the other way round (i.e. conflicted council members voting on the business of relevant committees). The Charity Tribunal has now directed the Commission to develop a code of practice for general use by other councils to identify and deal with conflicts of interest as they arise.
5. Consider publicity
Of course, considering public opinion and managing the information given to local residents is important throughout. Charity trustees and local authorities both owe comparable (but ultimately different) duties to report to the general public on their work and use of public assets. By managing this information and ensuring that the public does not build up unrealistic expectations of the use of charity property or of its financial viability, councils can ensure that when plans for change are unveiled, controversial decisions are underpinned by solid legal reasoning and supporting evidence.
Next steps
Stone King is independently recognised[2] as one of the three pre-eminent specialists in charity law in England and Wales, with extensive experience working for local authorities and managing charitable property. If any of the issues described above applies to you, please get in touch with us. We would be delighted to meet you and conduct an initial assessment free of charge to determine what assistance you need.
[1] the Local Authorities (Model Code of Conduct Order) 2007; and Charitable Trustees and Declarations of Interest Under the Code, published by Standards for England.
