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The law |
Refer to a lawyer |
Refer to an accountant |
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1. Application for registration from charities with a local authority as sole trustee |
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If the charity is an ecclesiastical charity or a charity for the relief of poverty, we must point out that by virtue of s.139(3) of the Local Government Act 1972, local authorities are prohibited from acting as trustees of such charities. We should suggest that alternative trustee arrangements should be made either before registration or as soon as possible after registration. |
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In all other cases, when we receive these applications, caseworkers should always check: |
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- for potential conflict of interest between the roles of the local authority as charity trustee and its role in its statutory capacity, which might arise, for example, from a contractual relationship between the two; and
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- whether the local authority in its statutory capacity will receive any undue benefit
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Any concerns should be raised with the promoter (who will almost certainly be the local authority itself). If it appears that a body of individual trustees may be more appropriate, subject to the points in OG 56 B2, this should be suggested to the promoter. |
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If, in such a case, the promoter insists that the local authority should be trustee, the application for registration can only be rejected if the evidence is such as to indicate that the purpose of the institution is not its declared charitable purpose, but is, in fact some ulterior non-charitable purpose of the local authority which is promoting it. |
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This inevitably involves the assertion that the promoters are acting in bad faith in seeking to establish the institution as a charity, and legal advice should be taken as to whether the organisation can be said to be properly established for wholly charitable purposes and thus required to register as a charity. |
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If there are particular concerns about the future administration of the charity, caseworkers should refer the case to Compliance Division setting out the reasons why it is being referred. |
 
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2. New appointments by us |
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Any proposal that a local authority should be appointed by us as sole trustee of an existing charity should be examined carefully against the factors set out in OG 56 C1. Section 4 of OG 56 C1 provides examples of when it is appropriate to appoint a local authority. It should be accepted only if we are satisfied, after considering all other possibilities, that that would be the most beneficial arrangement for the charity having regard to the need to: |
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- avoid conflicts of interest;
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- safeguard the charity’s property; and
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- safeguard the beneficiaries' interests.
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- If this is not the case, we should not agree to the proposal and should invite or suggest an alternative arrangement.
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3. When we offer to make a Scheme where the local authority is already sole trustee |
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When making a scheme for some other purpose in relation to a charity which is administered by a local authority as sole trustee, caseworkers should consider, with the aid of OG 56 B2, whether other trustee arrangements would be more appropriate. In suitable cases, and with the agreement of the Assistant Commissioner responsible for making the Scheme, caseworkers should take the initiative and suggest to the local authority that it might retire in favour of a body of individual trustees while, perhaps, retaining the right to appoint some of those persons. It should be clearly understood that those appointed by the local authority would have to act in the interests of the charity and not in accordance with the instructions of the local authority – see OG 56 B2. |
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Indeed in some cases it will be necessary for the local authority to resign as trustee. By virtue of s.139(3) of the Local Government Act 1972 local authorities are prohibited from acting as trustees of ecclesiastical charities or charities for the relief of poverty. Thus, in some circumstances, it will not be lawful for a local authority to be appointed or to remain sole trustee. |
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An obvious example is where a Scheme is being made to permit a parish council to sell allotments for the labouring poor and to provide for the resulting income to be applied for relief in need purposes. |
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4. Constitutional issues for local authorities when acting as charity trustees |
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4.1 Who may make decisions
4.2 Position of individuals acting on behalf of a local authority
4.3 Correspondence
4.4 Advice to the local authority |
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In cases where a local authority is sole trustee, it should be remembered that it is responsible in the same way as any other charity trustee for carrying out the normal duties and responsibilities of a charity trustee. |
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4.1 Who may make decisions |
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It is up to the local authority to decide, within the scope of local government law, what structures should be used to reach decisions in its name as trustee. An alternative to requiring all the decisions to be reached by the full body of councillors, for example, is to set up a separate committee to discharge its responsibilities as trustees (see section 101 of the Local Government Act 1972). |
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4.2 Position of individuals acting on behalf of a local authority |
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Whatever the structure employed, the individuals concerned are not themselves charity trustees. They must, however, act in a responsible way so as to ensure that the local authority acts properly as a charity trustee. If they fail to so this, they may be liable to the council under local government law for any losses it bears as charity trustee (see section 6 below). |
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4.3 Correspondence |
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We are entitled to be satisfied that those who deal with us on behalf of a local authority are entitled to do so. We would, however, only question the validity of statements made on behalf of a council about the decisions it has reached as charity trustee if we have good reasons to do so. |
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4.4 Advice to the local authority |
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In cases where a local authority is sole trustee, we should be careful to give advice only on matters affecting the performance of its duties and responsibilities in that role. We should avoid giving advice to individual councillors or agents on their individual responsibilities in the conduct of this business since they are not charity trustees. Their conduct is governed by local government law, but their decisions must be justified by the local authority by reference to its position as charity trustee. |
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5. Local authorities as Custodian trustee |
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Under section 4(3) of the Public Trustee Act 1906 and articles 30(1)(h) and (i) of the Public Trustee Rules 1912 a local authority may act as the custodian trustee of a charity, but only if the charity is for the benefit of the people living in the whole or part of its area. For example, parish councils are often appointed custodian trustees of charitable village halls, recreation grounds and youth clubs. However, a local authority cannot act as custodian trustee of an ecclesiastical charity or a local charity for the relief of the poverty. |
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The main duty of a custodian trustee is to hold the property of a charity (except, if it agrees, dividends and other income) and to have the custody of all securities and documents relating to the property owned by the charity. A custodian trustee: |
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- cannot manage a charity - that is a matter for the managing trustees; and
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- cannot act for the managing trustees even if there are none; and
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- must carry out the managing trustees' instructions unless that would involve the custodian trustee in a breach of trust or some personal liability.
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The main advantage for the local authority is that by being appointed as custodian trustee, it can maintain a close link with the charity, so long as it accepts that it must act within the limits defined for custodian trusteeship. |
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Occasionally, a local authority, acting as custodian trustee, might attempt to act outside the boundaries of this role. In such cases we should advise the managing trustees to ensure that the local authority limits its activities appropriately. If it refuses to do so, we should consider whether it is appropriate for it to continue to act as custodian trustee. We could also advise the managing trustees of the option of appointing a different custodian trustee. |
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OG 39 provides general guidance on custodian trustees. |
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6. Liability of a local authority and its agents |
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6.1 The general position in law
6.2 Indemnity insurance |
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6.1 The general position in law |
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The position is similar to that for any corporate trustee (see OG 38 B4 and section 4 above). In principle, a corporate trustee (such as a local authority) is liable for breach of trust in the same way as an individual trustee. It can be sued for breach of trust, and if liable will have to compensate the trust out of its corporate assets. |
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Whether the individual officers who commit the local authority to an action which results in a breach of trust are in turn liable to compensate that body (in its corporate capacity) is a matter for local government law: it is not our concern. Similarly, any complaints on this topic should be addressed to the District Auditor. |
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6.2 Indemnity insurance |
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We should NOT make an Order authorising the purchase of indemnity insurance for the authority as sole trustee out of the charity’s funds. A public body with the capacity to act as charity trustee should be prepared to accept the ordinary measure of legal responsibility for its actions as such, without seeking any indemnity. |
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Additionally, because any personal liability incurred by the councillors will be to the council rather than directly to the charity, the taking out of trustee indemnity insurance will not be appropriate, because they are not charity trustees. It would not therefore be expedient in the interests of the charity to provide cover for possible liabilities incurred by councillors. |
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7. Remuneration issues |
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7.1 Can charity funds be used to pay for services which the local authority is obliged to provide by law?
7.2 Can a local authority, as charity trustee, employ one of its own staff to provide services to the charity, from charitable funds? |
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7.1 Can charity funds be used to pay for services which the local authority is obliged to provide by law? |
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It is rare for charitable funds necessarily to be applied in discharging statutory functions. Unless the funds are held for charitable purposes that necessarily involve applying them for the statutory functions of the local authority, a local authority cannot, as charity trustee, use charity funds to pay for its staff, agents or contracts for services which it needs to acquire for the discharge of its statutory functions. |
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7.2 Can a local authority, as charity trustee, employ one of its own staff to provide services to the charity, from charitable funds? |
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Occasionally a local authority will wish to pay one of its own employees from the funds of a charity of which it is trustee. For example, a local authority may want to use the funds of a charity under its trusteeship to pay for its own clerk to act as clerk to the charity. |
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This is acceptable if: |
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- the service provided is necessary to the charity;
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- the payment covers no more than the reasonable cost of providing that service;
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- the employee is suitably qualified to provide the service; and
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- the service being provided is not one which would cause the employee’s duty to the local authority to conflict with his or her duty to the charity. Such a conflict is likely to arise, for example, if a local authority solicitor is asked to provide legal advice to a charity about a contract between it and the local authority.
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Payments in these circumstances form part of the necessary running costs of the charity which the trustees of any charity are entitled to meet from the charity’s funds. |
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Explicit authority (either in the governing document or from us) would be needed if the payments to the employee included an element of profit or gain to the local authority. This would be regarded as a trustee benefit and we should treat any instances of this in line with the principles on trustee remuneration. Similarly, where the employee receives payment over and above the going rate for the job but where there is not necessarily any element of profit for the authority, we should establish the grounds on which the local authority can justify such payments as being necessary and in the interests of the charity. |
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8. Local authorities and individuals acting jointly as trustees |
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In the past we have recommended the appointment of individuals to act jointly with a local authority, but since this also has disadvantages, we should no longer suggest it as a preferred solution. |
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Some of the same issues relating to joint trusteeship arise in the context of corporate trustees. OG 38 B2 provides a fuller discussion on this topic. |
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