Category : Author / Iain Mackintosh

In Part One, we covered a number of technical charity law issues examined in the Law Commission Report of 14 September 2017. This note deals with further issues dealt with in that Report.

Making Regulation of Charity Land Transactions Less of a Burden

When a charity sells, lets, or mortgages its land, it is subject to restrictions and requirements (as explained in our Guidance Note: Charity Property Transactions). Compliance with these can give rise to substantial professional costs and can cause delays to charity land transactions.

The Report recommends that the current position, whereby trustees have a duty to obtain and consider advice before entering into certain land transactions, should remain. However, it notes that there is strong support for trustees to be able to have more flexibility in how they obtain advice about any particular transaction so that the advice is tailored to that transaction. It also emphasises the importance of guiding trustees to the right category of adviser and the desirability of them obtaining advice from a property professional.

The Report proposes modifying the existing advice requirements as follows. Where, currently, charities can only obtain advice from a member of the Royal Institution of Chartered Surveyors, the Report proposes that the category of advisers who may give advice should include members of the Central Association of Agricultural Valuers and fellows of the National Association of Estate Agents, all of whom have professional qualifications, are bound by professional conduct rules, and carry indemnity insurance. The Report proposes that such a property professional should be permitted to advise when the transaction is within their expertise, and that, to enable a charity to save costs, an employee or officer of the charity who is such a property professional should be permitted to advise.

Further, the Report recommends simplification and rationalization of what an adviser currently has to set out in a report in order that in future there is not only more flexibility but also receipt of advice that is more pertinent to the charity’s needs for any particular transaction.

The Report also proposes changes to the “certification” regime. Currently, if trustees dispose of charity land but fail to comply with the advice requirements, purchasers are protected if the trustees provide a certificate in the “completion” document stating that they have complied with the requirements. The Report recommends that the certificate should also be effective if is contained in a contract so that the purchaser is protected from the point of “exchange of contracts”. The Report also proposes that trustees should have power to let the charity officer delegated to sign the contract or completion document to also give the certificate. These changes should help avoid additional transaction costs for purchasers and make purchasers more willing to enter into land transactions with charities.

Other proposals include removal of the need to give public notice of disposals of “designated land”, relaxation of some of the requirements to obtain Charity Commission consent where the charity’s transaction is with certain “connected persons”, and changes to the Charity Commission’s guidance for charities acquiring land.

Improving the Position where there is a Permanent Endowment

The Report proposes not only making clearer the definition in the Charities Act of “permanent endowment” (i.e. property belonging to a charity that cannot be spent), but also making it consistent and more in line with the sector’s understanding of the term. It also proposes reform to the ways in which a charity may use its permanent endowment.

Allowing More Payments to Trustees

The Report recommends a new power for a charity to pay for a supply of goods to it by one of its trustees. This would be equivalent to the existing power to do so where a trustee supplies services.

Streamlining Incorporation and Merger

The Report identifies some problems arising from the law governing the merger and incorporation of charities, in particular in relation to transfer of property and gifts by will to charities that have merged. It proposes changes to the law to remove these problems.

Changes to Charity Commission Powers

The Report suggests changes to the Charity Commission’s powers so that it can, wherever appropriate, refuse to register a charity or refuse to register a change of name by a registered charity because of unacceptability of its name, or require a charity to change its legal or “working” name. At present its powers in these situations are unsatisfactory.

The Report also recommends that there should be power for the Charity Commission to confirm the appointment or election of a trustee where there is uncertainty as to whether a particular person was properly appointed or elected.

Procedural Changes in Legal Proceedings in the Charity Tribunal and the Courts

The Report makes recommendations for changes in relation to:

• 1) authorisation to pursue “charity proceedings”;
• 2) costs protection in the Charity Tribunal;
• 3) suspending decisions pending a challenge; and
• 4) the procedure for references to the Tribunal.

Your Experience

Will any of these proposed reforms be relevant to your charity? Do you think they will be beneficial for your charity or for other charities? As ever, we would like to hear from you.

The Government is on a mission to drive up standards in the private rented housing sector. More new rules and regulations apply from April 2018 with the introduction of new Minimum Energy Efficiency Standards (MEES), Banning Orders and the Rogue Landlord Database.

Minimum Energy Efficiency Standards (MEES) – England and Wales

From 1 April 2018 it will be unlawful for a landlord to enter into a new letting (or extend or renew an existing letting) of a property with an F or G energy efficiency rating unless an exemption has been registered. From 1 April 2020, it will be unlawful to continue to let a residential property with an F or G-rating.

Landlords who let F or G-rated properties without having registered a valid exemption will be liable to financial penalties of up to £4,000 as well as “publication penalties”. A publication penalty means that the local authority will publish details of the landlord’s breach on a publicly accessible part of the National PRS Exemptions Register.

By now landlords should have taken steps to ensure that their properties are up to standard or, alternatively, have claimed an exemption. Detailed information can be found on the gov.uk website, here.

Banning Orders – England Only

Banning orders are to be introduced in England from 6 April 2018. They can be made against landlords, letting agents and property managers and will ban that person from letting property or engaging in letting agency or property management work for a period of at least 12 months.

Banning orders are intended to be used for landlords and agents who deliberately and persistently fail to comply with their legal obligations. Local authorities will be able to apply for a banning order against a person who has been convicted of one of the offences listed in The Housing and Planning Act 2016 (Banning Order Offences) Regulations 2018. The offences are, in summary:

• ● Using violence to secure entry (Criminal Law Act 1977)
• ● Eviction or harassment of occupiers (Protection from Eviction Act 1977)
• ● Failure to comply with an improvement notice or prohibition order (Housing Act 2004)
• ● Control or management of an unlicensed property under the HMO or selective licensing regimes (Housing Act 2004)
• ● Fire safety offences (Regulatory Reform (Fire Safety) Order 2005)
• ● Gas safety offences (Health and Safety at Work etc. Act 1974)
• ● Landlord and agent offences under the Immigration Act 2014
• ● Various serious criminal offences committed by a landlord or agent against or in collusion with the tenant of the landlord’s property or committed at the property

A landlord who breaches a banning order may face a prison sentence of up to six months or a fine. As an alternative, the local authority may impose a financial penalty of up to £30,000.

Database of Rogue Landlords – England Only

Also on 6 April, a database of rogue landlords and property agents will be established. This will be maintained by local housing authorities in England. Only central government and local authorities will be able to access the database.

Local authorities must add to the database the details of any landlord or agent against whom a banning order has been made. The entry will be maintained while the banning order is in force and must then be removed.

Local authorities may also add the details of any person who has been convicted of a banning order offence (even if a banning order has not been made) or who has at least twice within a period of 12 months received a financial penalty in respect of a banning order offence. Government guidance will be issued in relation to these discretionary entries in the database.

Advice for Landlords

The residential tenancy sector is subject to ever greater levels of regulation. Whilst some of the new provisions, such as banning orders, are designed to catch the worst “rogue” operators, even “good” landlords and agents need to make sure they don’t inadvertently fall foul of the law. Sensible steps to take are:

• ● Keeping up to date with legislative changes
• ● Engaging with the local authority on matters such as licensing and health & safety
• ● Regularly reviewing your business: are there any issues with the properties, the tenants or your paperwork that need attention?
• ● Networking with other landlords and agents
• ● Taking professional advice from lawyers, surveyors, accountants and others as appropriate.

From 1 April 2018 it will be unlawful for a landlord in England or Wales to enter into a new letting (or extend or renew an existing letting) of a commercial property with an F or G energy efficiency rating unless an exemption has been registered. From 1 April 2023, it will be unlawful to continue to let a commercial property with an F or G rating.

Landlords who let F or G-rated properties without having registered a valid exemption will be liable to financial penalties based on the rateable value of the property. The minimum fine is £5,000 and the maximum £150,000. There will also be “publication penalties”. A publication penalty means that the local authority will publish details of the landlord’s breach on a publicly accessible part of the National PRS Exemptions Register.

By now landlords should have taken steps to ensure that vacant properties, and those about to become vacant or be re-let, are up to standard or, alternatively, have claimed an exemption. Landlords need to have plans in place to bring all properties up to standard (E or above) by April 2023 or ensure that exemptions are registered.

Detailed information can be found on the gov.uk website, here.

The Government is committed to improving standards for tenants in the private and social rented sectors. It is therefore supporting a Private Members’ Bill tabled by Karen Buck, a Labour MP: the Homes (Fitness for Human Habitation and Liability for Housing Standards) Bill. (visit the Parliament website here to track the Bill’s progress.)

New Duty for Landlords and Remedies for Tenants

The Bill obliges landlords to keep rental properties in good condition by implying into a tenancy agreement a covenant by the landlord to ensure that the property is fit for human habitation at the beginning, and for the duration of the tenancy.

If a landlord fails to keep a property in good condition, the tenant will have the right to sue the landlord for breach of contract on the ground that the property is unfit for human habitation.

What are Landlords’ Current Obligations?

Landlords already have a statutory duty to keep their properties fit for human habitation. Relevant factors include damp, ventilation, lighting, and facilities for food preparation. This duty is enforced by local authorities using the Housing Health and Safety Rating System (HHSRS). An offence is committed if a landlord fails to comply with an enforcement notice.

However, there is currently no means for a tenant to take direct enforcement action against a landlord. They are reliant on the local authority doing so on their behalf.

How will Tenants Benefit from the New Law?

If the Bill is enacted (which is expected to happen) tenants will be able to take their landlord to court. The court may order the landlord to take action to make the property fit for human habitation and/or to pay compensation to the tenant.

How does this Affect You?

Are you a residential landlord, tenant, or agent? Do you welcome this legislation or are you worried about vexatious claims? As ever, we are keen to know your views.

Last month we wrote about the Government’s proposed HMO reforms. An Order has now been made extending the scope of mandatory licensing by removing the “three or more storeys” requirement. Landlords have until 1 October 2018 to apply for a licence for properties not previously subject to mandatory licensing. There will be no grace period after 1 October.

We await news on the introduction of minimum room sizes standards.

The Residential Landlords Association believes many of the HMO reforms are unnecessary and says they will put a huge strain on local authorities. Despite their raising these concerns with the Government, the Government has pressed ahead with the changes. What do you think? How are landlords, local authorities, and mortgage providers responding to the new HMO licensing rules? Please share your experiences with us by leaving a comment.

The Law Commission published a Report on 14 September 2017 on various technical issues in charity law, focussing on areas where there is inappropriate regulation of charities and any unnecessary legal complexity and inconsistency. It aims to remove or adjust the legal and regulatory burden on charities, whilst still safeguarding the public interest in ensuring that charities are properly run. (It does not also address high profile issues such as the law of public benefit, the charitable status of independent schools, or fundraising practices.)

The Report proposes a number of important changes to charity law. The draft Bill appended to the Report, when enacted, will bring those changes into effect. We have reviewed the Report and set out below a summary of those of its recommendations likely to be of interest to small and medium sized charities. For details of those recommendations, please see the Report (or a summary of it) on the Law Commission’s website.

Making it Easier to Make Ex Gratia Payments

The Report considers ex gratia payments out of charity funds. As we explain in our Guidance Note, Ex Gratia Payments by a Charity, an “ex gratia” payment is one which the trustees of a charity feel morally obliged to make, but which they have no legal power to make. For example, it might be clear from the circumstances that a testator intended to include in his Will a legacy to a family member but did not live long enough to amend his Will. In such a case, the charity’s legal entitlement to the residue under the Will would be greater than intended, and the trustees might therefore wish to pay such a legacy on a voluntary basis. The Guidance Note also details various other circumstances in which trustees might wish to make an ex gratia payment. (“Payment” for present purposes, includes a transfer, waiver or release of any property or rights.)

Charity trustees can currently ask the Charity Commission to authorise an ex gratia payment but if it is a small ex gratia payment, the costs of obtaining authorisation and the resulting delay before making the payment may be disproportionate to its value. The Report proposes amending the law to give trustees the power to make ex gratia payments that are small relative to the income of the charity without their having to obtain Charity Commission authorisation. Any payment is deemed “small” for this purpose under the Bill if it is no more than a certain amount and its gross income in its last financial year is no more than a certain amount, as follows:

• ● £1,000, where gross income is up to £25,000;
• ● £2,500, where gross income is more than £25,000 and up to £250,000;
• ● £10,000, where gross income is more than £250,000 and up to £1 million; and
• ● £20,000, where gross income is more than £1 million.

Trustees currently must personally take any particular decision to make an ex gratia payment, and they must only make a payment if they personally “regard themselves as being under a moral obligation” to do so; a subjective test. The Report proposes an objective test instead, namely that an ex gratia payment may be made if trustees “could reasonably be regarded as being under a moral obligation” to make the payment.

The Report proposes that, to ensure efficiency in charity administration, trustees should in future have power to delegate any decision to make an ex gratia payment wherever they wish to do so. With that power, they could then decide to make all such decisions personally or delegate any or all such decisions. Where any officer of the charity (e.g. the chief executive or a legacy officer) is delegated to make any such decision, the officer could then decide on behalf of the trustees if the objective test has been met. Where the test is met in any case, the trustees will have power (but not a duty) to make a payment.

For further guidance about ex gratia payments, see our Guidance Note, Ex Gratia Payments by a Charity.

Fundraising Appeals

Our Guidance Note, Fundraising Appeals By Charities – Suitable Wording for Appeals explains the current legal position where too much, or too little, money is raised by a charity in response to a fundraising appeal.

At present, where too much is raised, the Charity Commission can direct that the surplus is applied cy-près (“Cy-près” means “as near as possible”.); when too little is raised, the funds cannot usually be applied cy-près and the trustees must try to contact donors to offer a refund.

For small donations, the cost of contacting donors will often be disproportionate to the value of the donations. Where too little is raised, there needs to be a balance between protecting donors’ wishes and the administrative inconvenience and expense of contacting donors. The Report recommends reduction of that expense by amending current law such that the law does not require trustees to offer a refund of any donation of £120 or less in a year, and such that such donations can be applied cy-près. Trustees would only then have to try to contact a donor if he requested that when making the donation.

When funds raised are to be applied cy-près (because too much or too little has been raised by the appeal), trustees can currently ask the Charity Commission to make a scheme authorising the funds to be used for other similar purposes. In the case of small amounts, the charity’s and the Commission’s associated costs may be disproportionate to the amount in question. The Report therefore recommends amending the law so that, if a fund does not exceed £1,000, the trustees may apply it to new purposes without Charity Commission consent, provided that they first consider the desirability of securing that the fund is used for similar purposes.

Changing Purposes, Amending Governing Documents

The Report notes the importance of the ability to make changes to a charity’s governing document quickly and efficiently, whilst retaining safeguards so that any such changes are in the best interests of the charity and its beneficiaries. It concludes that greater alignment of the procedures currently available to corporate and unincorporated charities when altering their governing documents would be beneficial to create legal simplicity and consistency. It consequently recommends new powers for unincorporated charities to be able to make changes to their governing documents so that those powers are brought into line with those of charitable companies and CIOs. The Report also recommends that the same requirements for Charity Commission consent should apply to all charities, whatever their legal form, when they alter their purposes.

Your Experience

Will any of these proposed reforms be relevant to your charity? Do you think they will be beneficial for your charity or for other charities? As ever, we would like to hear from you.

The Government has indicated that new rules relating to houses in multiple occupation (HMOs) will be brought into force in October 2018. The key reform is the extension of mandatory licensing of HMOs. There are also new provisions regarding minimum room sizes.

What is a HMO?

In simple terms, a house or flat is a HMO if it is occupied by three or more tenants who form two or more households and the tenants share some or all of the toilet, bathroom or kitchen facilities. There are an estimated 500,000 HMOs in England.

If your rental property is a HMO you will need to comply with legislation relating to the management of HMOs. Depending on the size of your HMO you may also need a licence to operate your HMO.

Mandatory and Additional Licensing – The Current Rules

Currently mandatory licensing applies to “large” HMOs, meaning those that comprise three or more storeys and are occupied by five or more people. Licences to operate HMOs are obtained from the local housing authority.

Additional licensing applies if the local housing authority has designated an area as subject to additional licensing of HMOs. This means that a licence is required for the types of HMO specified in the designation, not just those fitting the description of a large HMO. Additional licensing may be introduced to address problems caused by ineffective management of HMOs in the particular area.

There are serious consequences for landlords and letting agents who do not obtain licences for licensable properties. These include unlimited fines for criminal offences, civil penalties of up to £30,000, rent repayment orders and, from April 2018, the possibility of banning orders.

Why Extend the Scope of Mandatory Licensing?

The Government has decided that smaller HMOs need to be brought within the mandatory licensing scheme. This is because HMOs are particularly attractive to so-called rogue landlords who exploit vulnerable tenants by charging high rents but failing to manage their properties properly. Overcrowding, health and safety issues and a failure to deal with anti-social behaviour are common problems.

What Will Be the New Scope of Mandatory Licensing?

The storey requirement will be removed, meaning that all HMOs with five or more occupiers living in two or more households will require a licence.

Mandatory licensing will also apply to purpose-built flats where there are up to two flats in the block and one or both are occupied by five or more people in two or more households. Each flat, if occupied as a HMO, will require a separate licence.

The new rules will affect around 160,000 houses.

How Will the Licensing Changes be Implemented?

The extension of mandatory licensing is expected to be implemented in two phases. Phase one will last for six months. During this period, landlords who are new to the mandatory licensing regime should apply for a licence. However, they will not be prosecuted if they fail to do so. (But they will be unable to serve a valid Section 21 Notice seeking possession if they have not applied for a licence.) During phase two, landlords can be prosecuted and have rent repayment orders made against them if they have not applied for a licence.

Conversion from Additional or Selective Licensing to Mandatory Licensing

If your HMO is currently subject to additional licensing, your licence will be passported into the mandatory licensing scheme at no cost and with no alterations to the licence conditions for the remaining period of the licence. The Government has indicated that similar conversion arrangements will be made for properties currently affected by a selective licensing scheme (a scheme which requires all private rented properties, including HMOs, in a designated area to be licensed).

National Minimum Room Sizes

Currently there are no mandatory HMO conditions or prescribed standards relating to room size. This is set to change. It will be mandatory for a HMO licence to specify which rooms in a HMO are suitable for sleeping accommodation, and by how many adults and children.

• A room for a single adult or child aged 10 or over must have at least 6.51sqm of usable floor space.
• A room for two adults or children aged 10 or over must have at least 10.22sqm of usable floor space.
• A room with a usable floor area between 4.64sqm and 6.5sqm may be occupied as sleeping accommodation by a child under the age of ten.

These are minimum standards and local authorities may impose higher standards. It will also be for local authorities to make rules about room sizes for rooms occupied by more than two people.

How do These Reforms Affect You?

Are you a landlord or tenant affected by the proposed HMO reforms? Do you agree that they provide a much-needed tightening up of regulation in this area, or are residential landlords being excessively regulated? Do you have any concerns about the implementation of the new HMO licensing regime? Please share your thoughts with us.

A new study led by Dr Ross Brown and Professor John Wilson at the Centre for Responsible Banking and Finance at the University of St Andrews suggests that, through a reduction in capital investment, less access to external finance, reduced growth, lower levels of product development, and reduced business internationalisation, SMEs could be set to suffer more than larger businesses under Brexit.

In particular, the study’s authors suggest that reduced investment will hamper SME growth, in essence, preventing many small, innovative startups from getting off the ground. Indeed, it is such businesses that expressed the greatest concerns when approached by the researchers.

Will the Impact Be the Same for Everyone?

Amidst the uncertainty, it is interesting to note that not all types of SMEs had the same level of concern. Dr Ross Brown, one of the lead researchers of the study, observed that: “The results of our analysis suggest that Brexit-related concerns could result in a range of negative consequences for UK SMEs, especially the impact on reduced capital investment, which critically weakens and undermines their ability to grow and prosper”. The research also notes, however, that such concerns are not shared by all in the SME community, suggesting that high-tech, service-oriented, and export-oriented businesses are likely to experience a more significant negative impact.

As well as the differentiation between sectors, the study also suggests that SMEs based in Scotland and Northern Ireland take a dimmer view on Brexit than their English and Welsh counterparts (a view which, it is also noted, mirrors voting patterns in the 2016 referendum to an extent).

More information, as well as the full paper, is available here.

What Does Brexit Mean to You?

For better or for worse, Brexit appears to be continuing apace. Much speculative talk of a second referendum has appeared in Brexit news of late; but, at least for the moment, support for the idea appears to be flexible at best. What is also clear is that impacts are already being felt in the business world due to rising uncertainty over what shape Brexit and related economic and legal arrangements will finally take.

As ever, then, we want to hear from you about your experiences. How has your business changed since the referendum result? Have you encountered any negative effects attributable to Brexit in your business and do you have plans in place to counter those effects? On the other hand, perhaps your business has improved as a result of Brexit and is looking forward to further improvements in the future. Again, we are eager to learn more about your experiences!

Back in April we wrote about the introduction of new measures to tackle “rogue landlords”. Rent repayment orders and financial penalties have already been introduced. From April 2018, the government intends to bring in banning orders for landlords and agents who have been convicted of certain “banning order offences”.

What are the Banning Order Offences?

Draft Regulations have set out the list of banning order offences. If a landlord or agent is convicted of one of these offences, the local authority will be able to apply for a banning order against that person. The list of offences, including Housing Act offences and other serious crimes, can be found here.

What Effect will a Banning Order Have?

A banning order will prevent a person from letting or managing a property or carrying out agency work for a period of at least 12 months.

Database of Rogue Landlords and Property Agents

There will also be a new database of rogue landlords and agents. The database will include the names of people against whom a banning order has been made. It may also include people who have been convicted of a banning order offence but who are not the subject of a banning order.

Access to the database will be for the government and local housing authorities only. It does not appear that the public will be able to access it.

What Should I Do?

If you are a responsible law-abiding landlord, you don’t need to worry about banning orders. Banning orders are designed for landlords who deliberately and persistently fail to comply with their legal obligations. Their introduction gives local authorities one more tool to use in the fight against rogue operators.

Time to deliveroo some über-important rights to gig economy workers?

Many of us have been there. You whip out your smartphone to book a taxi to take you home and, on the way, you order up a tasty takeaway to be sped to your house in a large box strapped the back of a student riding a bicycle. It’s convenient to be sure, but many (not least our drivers and box-backed riders) can’t help but notice that many legal protections bestowed upon employees are conspicuous only by their absence.

The gig economy has grown considerably in recent years and it can be highly beneficial, not only for businesses, but also for workers who value the flexibility inherent in the business model. Such benefits notwithstanding, however, the House of Commons Work & Pensions, and Business, Energy & Industrial Strategy Committees recently called on the government to close loopholes in employment law that currently allow gig economy businesses to force workers to be self-employed, denying them key entitlements such as holiday and sick pay.

This follows on from the Taylor Review, commissioned by the government in October 2016 and lead by Matthew Taylor, Chief Executive of the Royal Society of the Arts. The Review’s report (available here) was published in July 2017 and, at the time of writing, is yet to receive a full response from the government.

Shifting the Burden

There have been a number of court cases concerning the status of gig economy workers, including some which the persistently-embattled Uber has lost, but the default position for such workers remains mostly unchanged.

The Committees argue that “the current situation puts an unacceptable burden on workers to address poor practice through an expensive and risky court case while the companies themselves operate with relative impunity.” Under the new proposals, gig economy workers would benefit from a new presumption of worker by default, shifting the burden onto the companies who would have to either provide basic standards, rights, and benefits to their workers or prove that their workers’ true status reflected self-employment. Furthermore, the proposals include tough new penalties designed to outweigh any gains that companies might stand to make from unlawful practices.

Wage Premiums

The Committees’ proposals also include measures to compensate workers for the uncertainty inherent in gig economy work in the form of a wage premium for hours where work cannot be guaranteed. Not only would this help to balance out a situation in which the flexibility benefits can become quite one-sided, but it may also encourage companies to provide more clearly-defined hours or staff rotas.

A Good Gig?

Pleasing everyone may be difficult, of course. While it would be difficult to argue against improving the rights and protections afforded to gig economy workers, a trade-off that may stand to reduce the flexibility in the system may not be so welcome. Gig economy businesses, of course, maintain that everyone working for them loves the flexibility, and they most likely do, however the lack of protections and rights must surely be addressed in some manner that allows the flexibility in working hours to be preserved.

Do you work in the gig economy? Does your business take on staff on a self-employed basis like this? If so, how would you respond to a change in the law that required you to provide increased rights and benefits to workers while retaining the flexibility inherent in the gig economy of today? As ever, we value your input on the subject!