OPERATIONAL GUIDANCE

LOCAL AUTHORITIES AND TRUSTEES

ADVANTAGES AND DISADVANTAGES OF A LOCAL AUTHORITY ACTING AS SOLE TRUSTEE

OG 56 C1-26 July 2000

Purpose: Factors to take into account when considering proposals to appoint a local authority as sole trustee

Divisional responsibility

For action:

Charity Support Division

For information:

Investigation Division
Registration Division

Contents

1. Disadvantages of appointing local authorities as trustees
2. Advantages of appointing local authorities as trustees
3. When it is not appropriate to appoint a local authority
4. When it is appropriate to appoint a local authority

Meaning of expressions - list of Glossary terms used in this Guidance
Index to further related information

1. Disadvantages of appointing local authorities as trustees

1.1 The need to distinguish between corporate and charity property
1.2 Conflict of interest
1.3 Administration

1.1 The need to distinguish between corporate and charity property

One of the principal disadvantages is that local authorities often fail to separate their own property from that of the charities under their trusteeship. At the very least this will mean that the accounts of the charity concerned do not comply with statutory regulations: at worst this can lead to serious breaches of trust arising from the application of charity property for the benefit of the local authority.

If charities which have a local authority as trustee fail to comply with the statutory regulations they are just as much subject to our monitoring procedures as any other charity which is in breach of the regulations.

Examples have included local authorities using the income of a charity to pay for services instead of raising the necessary funds through the rating system to pay for them.

If we become aware of a situation of this nature we need to inform the local authority of its duties and responsibilities to the charity. The charitable assets must be properly identified and accounts properly drawn up.

Local authorities will also need to be aware of the Local Authorities (Companies) Order 1995 which sets out the additional responsibilities for charitable companies connected with local authorities: see OG 56 D1.

Distinguishing between corporate and charity property can be a particular problem in the event of local government reorganisation. A successor authority might not appreciate that property transferred to it from a predecessor authority is held on trust for charitable purposes with the result that it mistakenly treats it as part of its corporate property. In addition charitable property might be transferred to the wrong authority when such a re-organisation takes place.

1.2 Conflict of interest

As will have been seen from OG 56 A1 and OG 56 B1 a local authority can face difficulties in addressing the conflict of interest that might arise between its role and duty as a local authority and its role as a charity trustee. Conflicts often arise for example between the interests of the local authorities and their council tax and ratepayers on the one hand and those of charities and their beneficiaries on the other hand.

Such conflicts of interest can also arise where a charity under local authority trusteeship is to enter into a contract for the sale or purchase of property to or from the local authority with the result that the validity of such contracts might be set aside. For further guidance on the position with regard to leases of property please see OG 56 B3.

Conflicts of interest might also arise between the individuals who are responsible for reaching decisions on behalf of the local authority as trustee. The council members might disagree on matters of policy concerning the charity on party political or personal grounds unrelated to the interests of the charity concerned. Where such disagreements affect the administration of the charity caseworkers should deal with such disagreements in line with our usual policy.

1.3 Administration

Local authorities sometimes give the administration of charities less attention than would bodies of individual trustees constituted solely for the purpose of administering them. Section 4 of OG 56 B1 provides further information on this subject.

2. Advantages of appointing local authorities as trustees

The administration of a charity by a local authority can have advantages:

• as a body corporate a local authority enjoys perpetual succession so that it is not necessary to make individual appointments of charity trustees or to vest the charity's property in them;

• the authority may well have an informed view of the needs of the charity’s beneficiaries especially if the charity provides services similar to services provided by the authority;

• in the case of a recreation ground or open space the local authority is able to make bye-laws for the land which are enforceable by the police and the criminal courts;

• often the local authority will be willing to subsidise the operation of the charity out of its own statutory funds:

• either directly by way of grant aid; or

• indirectly by for example:

• meeting the cost of maintaining the charity's property; or

• providing professional services free of charge.

3. When it is not appropriate to appoint a local authority

In most circumstances the interests of the charity are likely to be better served by constituting a body of individual trustees to administer it. This is particularly the case where there could be a conflict of interest between the local authority and the charity (for example with regard to a particular land transaction or because the local authority is providing funding to the charity). If a local authority provides funds the danger is that it might be tempted to lay down conditions which are in the local authority's interests and not the charity's. OG 56 B2 provides guidance on trustees nominated by Local Authorities and OG 56 C2 provides guidance on potential conflicts of interest trustees nominated by the local authority may face.

OG 56 B1 details the statutory prohibition on local authorities acting as trustees of ecclesiastical charities or local charities for the relief of poverty.

4. When it is appropriate to appoint a local authority

There will continue to be circumstances in which it will be appropriate for a local authority to act as sole trustee. These will include cases where:

• it is not possible to persuade suitable individuals to act as trustees; or

• the actions of a body of trustees are under investigation and the appointment of a local authority as sole trustee is advisable as a precautionary possibly short term measure.

We will also be approached for our consent occasionally to a transfer of land to a local authority under:

• s.79(1) of the 1993 Act ; or

• Ss. 3 or 4 of the Open Spaces Act 1906 (see OG 56 C3).

In such cases we should not allow the fact that the local authority concerned would become the sole trustee of the relevant charity to be a sufficient reason for declining to authorise such a transfer.

However before we give our consent we still need to be satisfied that the transfer to the local authority is the most beneficial arrangement for the charity having regard to the need to avoid conflicts of interest to safeguard the charity’s property and the beneficiaries’ interests.

The following words and phrases are defined in the Glossary of Terms:

•

trustees

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