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Charities Act 2006

Commentary on Sections

Section 18: Cy-près schemes

70.This section alters the cy-près rule. The cy-près rule is a well-established legal rule that applies when the purposes for which charitable property is held are being changed by the court or by the Charity Commission. The occasions on which charitable purposes can be changed to new purposes by the court or the Commission are set out in section 13 of the 1993 Act, as amended by section 18 of this Act. At present the cy-près rule requires the new purposes to be as close as practicable (bearing in mind the reason why the need to change the purposes arose in the first place) to the original purposes.

71.Section 18 alters the cy-près rule by inserting into the 1993 Act a new section 14B, subsection (1) of which requires the court or the Commission to act, when making a scheme to change charitable purposes, in accordance with the remaining provisions (i.e. subsections (2) to (6)) of new section 14B.

72.Subsection (2) of new section 14B requires the court or the Commission, when making a scheme changing the charitable purposes for which particular property given to a charity is held, to have regard to certain matters (see next paragraph). This applies either when the scheme is transferring the property from one charity to another or when there is no transfer and the scheme simply changes the purposes of the charity that holds the property. “Property given” to a charity includes (by virtue of subsection (5)) both the property in the form in which it was originally given and any property derived from it. The effect is that if, for example, a piece of land was given to a charity and sold by the charity, the money representing the proceeds of the sale would also count as the “property given”.

73.The three matters to which the court or the Commission must have regard when making a scheme changing the charitable purposes for which property is held are set out in subsection (3) of new section 14B. One of those matters is the desirability of choosing new purposes which are close to the original purposes; but that is not paramount. The court or the Commission must give equal weight to the other two matters. One of these is the spirit of the gift by which the property came to the charity. The other is the need to ensure that the charity has purposes which are suitable and effective in the light of current social and economic circumstances.

74.Subsection (4) of new section 14B allows the court or the Commission, when making a scheme which transfers a charity’s property to another charity, to require the trustees of the receiving charity to use the property for purposes as similar as practicable to the original purposes for which the property was held. This is to cover cases where the original purposes are still useful but the court or the Commission believes that the property can be more effectively used in conjunction with other property.

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