Do you know who the ‘members’ of your charitable company are and what obligations they owe to the charity?

The Supreme Court has passed judgement on Lehtimäki v The Children’s Investment Fund Foundation (UK), putting the responsibilities of members of charitable companies in the spotlight for the first time.  

Facts of the case

The Children's Investment Fund Foundation (UK) (CIFF) was set up by Sir Christopher Hohn and his wife Jamie Cooper in 2002. When their marriage broke down, the running of CIFF became unmanageable and Sir Chris and Jamie agreed that Jamie would resign as a trustee and member of CIFF in exchange of a grant of $360m to Big Win Philanthropy, a charity which Jamie had established. 

Under the Companies Act, the members of CIFF had to vote to approve the grant (it being regarded as a payment for loss of office). CIFF had three members: Sir Chris, Jamie and Mr Lehtimaki. As the sole unconflicted member, the decision fell on Mr Lehtimaki. The case revolved around the question of whether the court could direct Mr Lehtimaki on how he should exercise his voting power. 

The outcome of the case

The Supreme Court decided that it could direct how Mr Lehtimaki exercised his vote as a member of CIFF, for the following reasons:  

  • Members of charitable companies, like trustees, owe fiduciary duties to the charity. This applies to all membership charities, including large ones, but the nature of the fiduciary relationship is to be interpreted by the circumstances of the particular charity and its membership, so it will vary

  • Members must exercise these fiduciary duties in good faith and to further the purpose of the charity

  • The Court can direct how a member exercises their discretion (this will be a rare exception to the non-intervention principle). In this case the Court gave a direction before Mr Lehtimaki had exercised his discretion and so the Court had determined how the decision should be made, leaving no room for discretion. 

The consequences of the case:   

Members of charitable companies have certain important powers reserved to them in the charitable company’s articles of association, Charities Act 2011 and Companies Act 2006.  The judgement makes it clear that the exercise of these powers is subject to the jurisdiction of the Court. If a member makes a decision other than in the best interests of the charity, the member will be in breach of his or her fiduciary duty.  

What is not so clear from the judgement is what happens when a member acts in breach of a fiduciary duty. Might they have to repay any loss resulting from a breach of duty to the charity? The other big unanswered question is the extent of the fiduciary relationship. The Supreme Court said this would be interpreted by the circumstances of each charitable company. For example, does this include the same duties expected of trustees: to duty to attend and participate at meetings, declare conflicts and be well informed of matters to be determined?   

If you would like to discuss the implications of this judgement or would like a general governance review, please get in touch with our specialist Charities Team by clicking here.

 

 

 

Rent Reduction during the Covid-19 lockdown: Advice for charity and commercial tenants

Charitable and non-charitable organisations alike are seeing a downturn in their income as a result of the recent lockdown put in place to combat the spread of Covid-19. For tenants of commercial property, rental payments are often their most significant regular outgoing, and a reduction could go a long way to easing cash flow issues. For landlords, a tenant’s cash flow issues can in turn cause problems with their own income.

The Coronavirus Act 2020 came into force on 26 March, and includes extra protection for tenants of commercial property who are struggling during the lockdown. Section 82 of the Act deals with protection from eviction for business tenancies in England and Wales and prohibits enforcement of a right of re-entry or forfeiture for non-payment of rent until 30 June. It is accepted that, although section 82 does not reference them directly, the same provisions apply to charity tenants as well.

However, the level of rent reserved by leases of commercial property is contractual, and not something the Government can legislate for. It is therefore vital that the parties enter into a dialogue as soon as possible to come to an agreement that suits everyone. Possible considerations include:

    • A reduction in the rent for as long as the lockdown is in force, or until such time as the parties agree between them. It is expected that the lockdown measures will be lifted on a rolling basis, so some tenants will be able to resume full rental payments sooner than others;
    • A rent free period for as long as the lockdown is in place;
    • An agreement to defer the rent, where unpaid rent is to be repaid later, either with or without interest, in accordance with terms the parties agree between them; and
    • An amendment to the rental payment terms. For example, a tenant could benefit from monthly payments instead of quarterly.

For charities, there are some additional considerations. For charity landlords, the trustees have a duty to ensure that they achieve the best level of rent reasonably obtainable for the charity, so agreeing a reduction without proper advice and consideration could be deemed a breach of this duty.

For charity tenants, the Charity Commission has published guidance to state that trustees need to think about the long term effects on the charity if some or all of the rent is not paid during the current situation, such as future cash flow issues if their landlord demands repayment of arrears after the lockdown is lifted.

It therefore is advisable for charity trustees to:

  • take advice from a qualified surveyor as to what they can realistically either pay to their landlords, or accept from their tenants, during the lockdown;
  • negotiate the best position they reasonably can under the circumstances;
  • document any changes in the level of rent or payment terms immediately, which is something PWW Solicitors can help with; and
  • keep the arrangement under ongoing review, in case circumstances change. If you would like to discuss an arrangement you have in place, or get further advice on the options available to your business or charity, please contact us here and we would be happy to assist.