welcome to our latest charities bulletin
This issue covers:
Scottish Incorporated Charitable Organisations
Unincorporated Associations
Employment Law update 2012
Head of Terms for Leases
Q&A Corner
Fixed Fees
Events
Scottish Incorporated Charitable Organisations
From 1 January 2012, all Scottish charitable entities have had the option to adopt a new legal form as a Scottish Charitable Incorporated Organisation (SCIO). The SCIO first became available on 1 April 2011, when it was possible for new charities to establish as SCIOs and for existing charities constituted as trusts, unincorporated associations or friendly societies to convert to a SCIO. Now, it is also possible for charitable companies and industrial and provident societies to apply to the Office of the Scottish Charity Regulator (OSCR) for consent to convert to a SCIO. Consequently, OSCR is predicting a high demand for SCIOs in 2012.
To date, around 20% of applications from new entities seeking charitable status have chosen to establish as a SCIO. In addition, a significant number of existing charities have applied for OSCR consent to convert to a SCIO.
For entities such as unincorporated associations and trusts, the benefits of converting to a SCIO are usually quite clear, unless the charity’s objects or activities give particular justification for an alternative legal form. This is because trustees of a trust or an unincorporated association risk incurring personal liability for the charity’s debts in the event that it is unable to meet demands as they fall due. On the other hand, a SCIO affords the benefit of limited liability to trustees. Unlike trusts and unincorporated associations, a SCIO has legal personality to transact in its own name, for example, it can enter into contracts, employ staff, lease or own property and borrow money.
It will be interesting to see how many companies and industrial and provident societies now choose to convert to a SCIO given that their trustees already enjoy the benefits of limited liability and separate legal personality. Nonetheless, there are still some further advantages to be gained in doing so. For example, charitable companies are subject to dual regulation – by both Companies House and OSCR – and must comply with legislation relating to both company and charity law. SCIOs are only regulated by OSCR and are subject to the requirements of charity law. Furthermore, accounting regulations relating to SCIOs are slightly more relaxed than those relating to charitable companies, subject to certain financial thresholds.
But are the benefits outweighed by administrative requirements relating to conversion? OSCR has liaised with Companies House and the FSA (which is responsible for the regulation of industrial and provident societies) to ensure that the conversion process is as hassle-free as possible. Companies and industrial and provident societies wishing to become SCIOs must submit an application for conversion to OSCR, together with a resolution of members agreeing to the conversion and a constitution for the new SCIO. When this is received by OSCR, it will consult with Companies House or the FSA as applicable to consider the application. If consent to the conversion is granted, Companies House or the FSA will cancel the previous registration, OSCR will update its records and the company/industial and provident society will automatically convert to a SCIO, retaining the same name and charity number.
For further information in relation to conversion of existing charities to SCIOs, or alternatively, the setting up of a new SCIO, please do not hesitate to get in touch with a member of our Charities Group.
Back to topUnincorporated Associations
A recent case has highlighted the potential dangers relating to liability which may attach to trustees of an unincorporated association.
Davies .v. Barnes Webster & Sons Ltd 2011
Mr David Davies was President and a Management Committee member for Romford and Gidea Park Rugby Football Club, an unincorporated association. As President he possessed the Club’s land and buildings under a trust deed.
In 2008 there was a special meeting of the Club at which the members, including Mr Davies, voted to instruct builders to undertake the clubhouse redevelopment. Mr John Smith, the Club’s Treasurer, signed the building contract and Mr Davies witnessed the signing. The contract between the parties was for the sum of £954,878; however there was also provision in the contract for “variations”. This clause allowed the builders to recover any additional costs incurred by them when undertaking the redevelopment.
At the end of the development there were “variations” to the tune of £147,000. The builders subsequently issued a statutory demand calling on Mr Davies to meet the outstanding amount. Mr Davies applied for the statutory demand to be set aside and argued that he could not be liable for the debt as he had not signed nor read the terms of the contract.
It was held by the court, that there was an intention by the Management Committee to create a binding contract and that it had delegated authority to sign the contract to Mr Smith. Accordingly, Mr Davies as part of the Management Committee and trustee of the Club’s land and property, was liable for the debt outstanding in respect of the clubhouse redevelopment.
The Legal Position
Under the current law in Scotland, an unincorporated association does not have a separate legal personality and therefore its liabilities cannot be distinguished from those of its trustees.
An unincorporated association cannot enter into contracts in its own name, sue or be sued, own property or employ staff. It falls to the trustees, in their personal capacity, to carry out all of these functions. Therefore, when things go wrong the trustees of an unincorporated organisation will be held responsible for any liabilities incurred.
Incorporation protects trustees from potentially significant personal liabilities. Any liabilities which are incurred by an incorporated organisation would be met out of the capital funds of the incorporated body or by their insurance provider, rather than becoming the personal responsibility of the trustees.
If you are constituted as an unincorporated association and are considering a change of legal form, please do not hesitate to get in touch for further advice.
Back to topEmployment Law Update 2012
In the fast paced world of employment law change is a given and this year is no exception. However, whilst the historic changes usually meant more employment law legislation and more rights for workers, the emphasis in 2012 will be on reforming the Employment Tribunal system in an attempt by the Coalition Government to reduce the regulatory burden on businesses and employers in general, and encourage more employment.
For employees commencing employment on or after 6 April 2012, subject to parliamentary approval, the qualifying period of service for employees making claims of unfair dismissal at Tribunal will be increased from one year to two years (though the status quo will be retained in relation to those making claims of automatic unfair dismissal for health and safety reasons, pregnancy etc.). This means that in most circumstances employers will have a longer period to assess whether an employee is “working out” and will be able to terminate employment without incurring liability so long as the termination takes place within the first two years (taking into account any notice period) and the termination is not for a discriminatory or otherwise inadmissible reason. Transitional rules will govern the change in the law and will protect employees with less than two years’ service on 6 April 2012, meaning that those with 12 months’ or more service will not lose their right to claim unfair dismissal, and those with less than 12 months’ service will gain the right on achieving 12 months’ service.
Other reforms due to take place in April 2012, again subject to parliamentary approval, include having more judges in unfair dismissal claims sitting alone rather than sitting with lay members of the Tribunal which is currently the case, withdrawing expenses for witnesses, increasing the amount of deposit claimants require to pay if their case is thought to be weak and increasing the amount that either party has to pay to the other in costs if their case had no reasonable prospects of success or their conduct throughout the Tribunal proceedings has been unreasonable. Such reforms are designed to lower costs and speed up Tribunal claims.
During the course of the year the Coalition Government is also likely to consult on other employment law proposals including:
- The introduction of “protected conversations” to allow employers to have frank discussions with employees, which would be inadmissible in Tribunal proceedings;
- A new “rapid resolution” scheme to deal with employment disputes without recourse to a Tribunal;
- Collective redundancy consultation; and
- Improving the operation of the TUPE Regulations.
Fees for employees who wish to make claims at the Employment Tribunal or Employment Appeals Tribunal will also be introduced, though this will not take place until 2013 or 2014. The Coalition Government is currently consulting on two separate fee-charging schemes.
Should the reforms have the desired effect, charity and not for profit employers should benefit as much as any other employer.
There are changes afoot that are likely to be welcomed by employees. An eligible employee’s entitlement to take parental leave will increase from a maximum of 3 months’ leave to 4 months’ leave for each parent though this is unlikely to come into force until 2013. The changes will also clarify that the entitlement is open to all eligible workers including fixed-term, part-time and temporary agency workers.
In addition, from Autumn 2012 eligible employees will be automatically enrolled into pensions with mandatory employer contributions to qualifying pension schemes. However, for employers with fewer than 3,000 staff, the duty to auto enrol staff will not be implemented till later and we await the dates for this.
In conclusion, 2012 will be a challenging year for all employers including charities and not for profit organisations, which will have to keep up-to-date with the changes. As part of its seminar series, Lindsays is holding free employment law updates in Dunfermline, Glasgow and Edinburgh in April. Please visit www.lindsays.co.uk for details about how to book.
Download our handy Employment Essentials
Heads of Terms for Leases
In the current economic climate, everyone is conscious of trying to minimise costs as much as possible. If you are intending to take on a lease of a property, here are some cost-saving matters to look out for when agreeing heads of terms:
Costs: Make sure you have an accurate indication of all costs: these may include rent, business rates, insurance premiums, service charge, utilities and repairs and maintenance projections. Can you obtain an inclusive rent/service charge which includes some or all of these costs so that in so far as possible your costs are fixed? Charities should be entitled to relief from rates and will also usually be entitled to relief from Stamp Duty Land Tax on leases. It is usual for a tenant to pay the landlord's costs for consent to any tenant's alterations and any future assignation or sub-lease but not the Landlord's own costs in relation to the lease itself.
Term/break option: You may not wish to commit to a long lease in case the property does not work out for you. Ask for a tenant only break option or consider asking for a shorter lease but with an option to extend.
Rent/Rent free period: Find out whether the rent proposed is a fair market rate for the area by checking comparable properties. Can you obtain any inducements from the landlord - a rent free period, a rent concession for some of the lease term, contributions from the landlords towards the costs of works required to the property? If cash flow is an issue, ask to pay rent monthly rather than quarterly.
VAT: If you have to pay VAT on rent can you recover it?
Repairs: Try to restrict your liability for maintenance and repairs as much as possible. Ask for an internal repairing only lease so you are not responsible for potentially expensive external or structural repairs. Make the repairs subject to a schedule of condition so that your obligation is to return the property in no better a condition than at the start of the lease. Full repairing and insuring means exactly that – you will be liable for the property as if you were the owner, including expensive items such as maintenance or renewal of the roof and exterior of the property.
Use: Check that the authorised use of the property fits with your proposed use, otherwise you will be responsible for the cost of obtaining the necessary change of use consent (and run the risk of it not being granted).
Rent review: You should check the proposed terms with your surveyor. The usual rent review cycle is 5 years. Shorter leases should not include reviews.
Alienation: You may wish to be able to share occupation with related companies without having to ask for landlord's consent to assign or sub-let to a third party. Check that any landlord’s consent provisions are not too strict.
Alterations: Make sure that you will be allowed to carry out any alterations you need to the property. Usually, landlord’s consent will be required.
Utilities: Tenants now have the right to choose their own gas and electricity suppliers, subject to certain limitations.
Survey: Particularly if there is to be a full repairing obligation, you should consider having a survey of the property done to assess its condition at the start of the lease and to avoid unforeseen repair costs during or at the end of the lease.
It is worth consulting experts such as surveyors and solicitors to assist in negotiation of heads of terms as this may well save you costs in the long run.
If you do have any particular requirements, you should make sure they are included in the heads of terms, otherwise it is may be difficult to ask for these terms later.
If you have any questions or need assistance with Heads of Terms please contact Fiona Linklater or Sharon Drysdale.
Back to topQ&A Corner
Question: is there a minimum legal age for charity trustees in Scotland?
Answer: Yes. But interestingly the Charities and Trustee Investment (Scotland) Act 2005 does not prescribe a minimum age for trustees. Instead, this is found in sections 1 & 9(7) of the Age of Legal Capacity (Scotland) Act 1991, which stipulates that persons under the age of 16 cannot act as trustees. This fits with section 157(1) of the Companies Act 2006 which provides that company directors must be aged 16 or over. This is important as otherwise charitable companies would be subject to an inconsistency in this regard.
If you have a question you would like us to answer in future bulletins, please send this to laurapeachey@lindsays.co.uk
Back to topFixed Fees
We appreciate that when budgets are tight, many of our charity clients would like greater certainty as to what their costs will be, particularly their legal costs. With this in mind, we are pleased to offer a competitive fixed fee package, including the following:
Charity/Company/Governance
- Registered office service
- Company secretarial service
- Company incorporation
- Obtaining charitable status
- Review of Constitution
We are also often able to offer fixed fees for employment and property law work. Please do not hesitate to get in touch and we will be happy to provide you with a bespoke quote in relation to the work you require.
Back to topCharities Sector Events
Our Charities Group is involved in the following upcoming events:
Trustee Exchange
The Trustee Exchange is a one-day conference hosted by Governance Magazine and supported by the Charity Commission. As well as a number of informative training sessions led by experts in the charitable sector, the Trustee Exchange also offers charity trustees a forum in which to discuss and share experiences. It takes place on 22 February in London and our Alastair Keatinge will be attending. Do let Alastair know if you are also attending.
For more information, please follow the link below:
http://www.civilsociety.co.uk/events/conferences/content/10628/trustee_exchange_2012
WS Charities Conference – New Opportunities for the Scottish Charity Sector
The annual WS Charities Conference shall be held on Thursday 23rd February at the Signet Library. This day conference will focus on new opportunities for the Scottish charity sector. The Conference will be chaired by Alastair Keatinge and sessions will be led by a number of professionals working in the charity sector, including OSCR Chief Executive, David Robb.
Delegates will be able to select from four afternoon workshops looking at options for governance, underperforming trusts, bringing business on board and dealing with accounting regulations.
We would love to see you there. For further information and to book your place, please click on the link: http://www.thewssociety.co.uk/index.asp?tm=52
The Gathering
The Gathering will take place at the SECC in Glasgow on 29th February and 1st March. Organised by the Scottish Council for Voluntary Organisations, the Gathering is a unique and free event which attracts over 3000 visitors and is the largest event of its kind in the UK. The two day programme includes over 50 events dealing with issues relating to funding, volunteering, health, employment, policy, accounting and legal matters.
You can see the full programme of events and book a place by following this link: http://www.gatherscotland.org.uk/programme-of-events/attend-an-event
Alastair and Laura will be attending – please say hello if you see us!
Coming Soon…..
The Charities Team will shortly be launching a LinkedIn page where we will post details of any charity law updates, news, queries or discussion points. Connect with Alastair Keatinge or Laura Peachey for further details in relation to the Lindsays’ Charities Team page.
We hope you found this Bulletin informative. If there are any topics that you wish covered in our future Bulletins please contact Alastair Keatinge - alastairkeatinge@lindsays.co.uk.
Lindsays has wide experience in acting for clients in the charity and not for profit sector. If you would like to discuss any issues with our team, please get in touch.
This newsletter has been issued by Lindsays on the basis of publicly available information, internally developed data and other sources. Whilst all reasonable care has been taken to ensure the facts stated and the opinions given are correct, Lindsays does not accept any responsibility for its content and advise that specific advice should be sought regarding the topics covered.
© Lindsays 2012
