OPERATIONAL GUIDANCE

LOCAL AUTHORITIES AND TRUSTEES

AN OVERVIEW

OG 56 A1-26 July 2000

Purpose: This series of OGs provides: an overview; guidance on our approach when dealing with local authorities as trustee; issues connected with the independence of trustees particularly when the trustees are nominated by local authorities; can a local authority grant a lease as charity trustee to itself in its corporate capacity or vice versa; advantages and disadvantages of a local authority acting as sole trustee; potential conflicts of interest which trustees nominated by the local authority may face; statutory provisions under which local authorities hold acquire and administer gifts and land; and the Local Authorities (Companies) Order 1995.

Divisional responsibility

For action:

Charity Support Division
Registration Division

For information:

Investigation Division
Charity Database Division

Contents

1. Principal roles played by local authorities in the trusteeship of charities
2. Local authorities acting as sole trustees
3. Local authorities acting as sole trustees: Issues at Registration
4. Local authorities acting as sole trustees: Issues after Registration
5. Local authorities nominating trustees
6. Where councillors or officers of the Council are to be appointed
7. The Law

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

1. Principal roles played by local authorities in the trusteeship of charities

1.1 Statutory role: background
1.2 Trusteeship role

1.1 Statutory role: background

Local authorities in England and Wales include County Unitary District Borough and Parish Councils (in Wales a Community Council is the equivalent of a Parish Council). They function first and foremost as local government bodies and their primary functions are to deliver a range of public services within their geographical areas. Their responsibilities and operations are defined in the various Local Government Acts. The policies and decisions within this framework are set by locally elected councillors on the basis of political considerations. It is usual for local authorities (other than parish / community councils) to employ staff to provide the administrative support to enable the policies of the Council to be put into practice (in much the same way as civil servants advise on and put into practice the policies of the Government of the day).

1.2 Trusteeship role

Local authorities can act as:

• sole trustee: the authority as a corporate body both holds the property and oversees its application as charity trustee (see section 2 below);

• joint trustee together with individual trustees;

• custodian trustee: the authority holds the property but takes no decisions on its use. OG 56 B1 section 5 provides further guidance.

They can also:

• appoint their nominees as trustees (see section 5 below);

• exercise other powers in relation to a charity; or

• fund the charity either through grants or contracts.

In addition the holder of an office connected with the local authority may either be a trustee ex officio or have some other powers and duties towards the charity such as appointing some of the trustee body.

The precise responsibilities if any of the local authority as a trustee will be set out in the charity’s governing document. A local authority could be involved in more than one capacity for example acting both as custodian trustee and appointing one or more of the charity trustees.

2. Local authorities acting as sole trustees

Many local authorities act as sole trustees of local charities - especially charities for recreational or educational purposes.

In order to be a charity a body must be established for exclusively charitable purposes. It cannot be established to further the purposes of some non-charitable body such as the local authority itself. Local authorities and charities often both have close interests in local topics. The charity needs to be independent of the local authority in the sense that decisions about the administration and operation of the charity need to be taken solely in the interests of the charity with a view to furthering its charitable purposes and for no other purpose.

Against this background although there may be benefits in a particular case in having a local authority as trustee in general there are potentially serious disadvantages which are summarised in OG 56 C1. Therefore in exercising our power under s.16(1)(b) of the 1993 Act to appoint charity trustees unless there is a compelling reason for appointing the local authority we will generally try to make some other trustee arrangement. OG 56 B1 provides further guidance on this.

3. Local authorities acting as sole trustees: Issues at Registration

OG 56 B2 section 1 provides further guidance on issues to consider at registration for example where a local authority is to be the trustee or where the charity is being set up to take on a local authority facility (such as perhaps the provision of a leisure centre).

4. Local authorities acting as sole trustees: Issues after Registration

Where we have serious concerns about the ability of a local authority to act as trustee because for example:

• it fails to deal satisfactorily with conflicts of interest; or

• its members become involved in internal council disputes over the charity which cause the administration of the charity to break down; or

• it fails to separate clearly its statutory property from that of the charity; or

• when a local authority is proposing to lease charity property to itself in its corporate capacity or vice versa (OG 56 B3 provides guidance on this subject)

we should be prepared to advise the local authority that it would be appropriate for it to stand down voluntarily as a trustee whilst recognising that we can remove a trustee only where the normal conditions set out in s.18 of the 1993 Act apply (a formal inquiry having been opened first) .

We should also bear in mind our concerns when making a Scheme for a charity of which the local authority is already sole trustee. We should consider whether other trusteeship arrangements might not be more appropriate and in suitable cases we should suggest that the local authority retires in favour of a suitably constituted body of individual trustees.

We should not however as a matter of course open new cases simply to seek to replace a local authority as trustee where there are no other good reasons for doing so.

5. Local authorities nominating trustees

Persons who are appointed trustees of a charity must exercise their own judgement as to the best interests of the charity. It is no part of their function to represent the body appointing them or to carry out the wishes or discharge the statutory duties of the body appointing them. In exercising a power of appointment a local authority’s sole concern is to ensure that it selects a fit and proper person to act. It would be quite wrong for a local authority to regard its appointee as an instrument for giving effect to its policies or wishes. (A power to appoint trustees is considered to be a fiducary power: this means that it must be exercised in the interests of the charity and not in the interest of the person who exercises it.).

Local authorities can have an important and useful role in identifying suitable individuals to act as trustees. If however there is a risk of actual or perceived conflict of interest or of undue influence the guidance in OG 56 B2 should be followed.

6. Where councillors or officers of the Council are to be appointed

6.1 Issues at Registration
6.2 Issues after Registration

6.1 Issues at Registration

The appointment of members or officers of a local authority as trustees of a body might suggest in certain circumstances that the body was not intended to be independent of the local authority. We must be alert to this possibility at Registration stage in case the trusteeship arrangements are such as might give rise to conflicts of interest and duty in the administration of the charity. This may have the effect of exposing the charity's transactions to the risk of being set aside.

For example an intention that the body should not be independent of the local authority might be evident where these individuals are appointed by the authority to a charity which contracts with it or is likely to do so having regard to the nature of the charity. In those cases there may arise a conflict of interests for those appointees which will be difficult to resolve. For example such appointees might be unable to contribute to the trustees' discussions concerning the contracts with the authority without exposing the contractual arrangements themselves to the risk of their being set aside. Further guidance is set out in OG 56 B2.

6.2 Issues after Registration

It is the responsibility of every trustee to act in the interests of the charity whether or not he or she is connected with the local authority. But the authority has a duty not to pressurise a charity trustee who is connected with it to act otherwise than in the interests of the charity and may be liable for any breach of trust caused by its doing so.

A charity is entitled to the impartial judgement of its trustees directed solely towards achieving the best interests of the charity. Trustees are bound therefore not to allow their other interests to influence their judgement. Where the appointment of a member or officer of the local authority will give rise to the risk of a continuing or substantial conflict of interest for that individual the charity’s interests will generally require the local authority to appoint an individual who has no connection at all with the local authority.

OG 56 C2 provides guidance on the separate issue of officers and councillors who are trustees but have not been appointed by the Council.

7. The Law

There are a number of statutory provisions which set out the circumstances and restrictions on local authorities acting as trustees. These are set out in OG 56 C3.

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

•
•
•

custodian trustee
the 1993 Act
trustees

Go to: Index to further related information