Local authority acting as charity trustee: what to think about

A recent case has served as a helpful reminder of the additional challenges a local authority can face when it acts as a charity trustee and wishes to deal with a charitable trust's assets.

The first-tier tribunal (Charity) has allowed part of an appeal against a Charity Commission scheme relating to the property of the Victoria Hall Trust, a charity whose only trustee is the London Borough of Ealing. The charity provides recreation facilities, and its property is held by the local authority on charitable trust for holding meetings, entertainment and other activities. Any surplus from such activities is to be distributed to local charities in the borough.

For a number of years, the local authority treated the charity’s assets as if they belonged to the local authority. It paid for the upkeep and maintenance of the property from its own funds and accepted money for the use of the charity’s property whilst failing to keep such monies separate from the local authority’s funds. It also failed to maintain separate accounts for the charity. Of most recent concern was the inclusion of the charity’s property in a plan to dispose of the property complex in which it was situated to a commercial developer.

Representing the charity's interests

The Charity Commission sought to assist the local authority, in its capacity as charity trustee, by authorising a scheme to allow the charity’s property to be leased to the developer with a community use protocol and an income-sharing arrangement. Local residents and interest groups appealed against the scheme.

The first-tier tribunal (Charity) held that whilst the Charity Commission could make a scheme to facilitate changes to the charity’s governance in light of the plans, they were not satisfied that the terms of the scheme adequately protected the charity’s interests.

Historical philanthropy

This decision highlights a common challenge for local authorities holding charitable trust assets. These trusts often arise from an act of philanthropy hundreds of years ago, and the connections to the charity get lost over time. They can cover historic buildings, open spaces, parks, libraries and similar public spaces. The terms of the charitable trust can often be challenging to interpret correctly and can place significant restrictions on the local authority’s ability to deal with the premises. 

There is a need for local authorities to be aware of the assets that they hold on charitable trusts so that they can discharge their additional duties as charity trustees. We would recommend, as a minimum ensuring:

• The registered title is accurate regarding how the land or premises is held and contains the correct statements and certificates.
• The charity’s assets are held separately from the local authority’s, including a separate bank account for funds and separate financial accounts.
• The charity is registered with the Charity Commission if required.
• Effective governance arrangements are in place to document decision-making separately from council meetings.
• Effective management of conflicts of interest between the best interests of the charity and those of the local authority.
• Specialist advice is obtained before the local authority deals with the charitable assets to ensure all charity law issues have been properly considered and any regulatory consents or schemes obtained.

If you'd like to speak about any of the issues raised in the article contact Samantha Pritchard, partner in our charities team on 0191 211 7905 or email [email protected]