Change gratefully received

While lawyers welcome the reform of charity law and a new appeals process, Chris Baker finds that the regulator may not be quite as content if overseen by an independent body as proposed

Question: What have men in ruffs, plague-carrying rodents and public executions all got in common? Answer: they were all far more commonplace when the laws governing what constitutes a charitable purpose were set out in 1601 than they are now.

But plans are afoot to bring charity law into the 21st century and deal with business left unfinished by the last Charities Act in 1993.

The Charity Commission, the quango that registers and regulates charities, has streamlined the process for appeals against its decisions (see [2002] Gazette, 19 September, 5) and new legislation could be introduced this year further to reform charity law.

Unsurprisingly, these moves have been largely welcomed by the lawyers who act for charities.

As Moira Protani, a partner at City firm Berwin Leighton Paisner, puts it: 'The aspirations are excellent - after all, 1601 was a long time ago.'

To be granted charitable status, the commission has to decide whether an organisation meets criteria of advancement of education, advancement of religion, relief of the poor or other purposes beneficial to the community.

As more and more organisations follow the so-called 'fourth head' of community benefit, such as sport, healthy eating and regeneration, lines are becoming blurred.

Registration involves a 'gateway' process where civil servants ask organisations a huge number of questions about their purposes.

'Sometimes they come to views that have nothing to do with the law and we have to put them right on that,' Ms Protani says.

The commission implemented its new two-stage review of appeals after a two-year pilot scheme proved a success.

The first review is now carried out by a senior commission officer - who was not involved in the original decision - under the direction of the regional operations manager.

The second stage is run by one or more commissioners.

The commission's head of legal services, Kenneth Dibble, says of the system: 'Many decisions have been changed, so it's seen as working and obviating the necessity of going to court which practitioners had seen as being the only available remedy.

We do recognise that the High Court is a lengthy and often costly process.'

Recent reviews where decisions against charitable status have been overturned concerned the Centre for Corporate Accountability, the Internet Content Ratings Association, and the National Federation of Spiritual Healing, he adds.

However, the first review under the new regime of a decision made about the Castle Trust was upheld.

Meanwhile, in cases of complaints about the commission's handling of an application, an independent reviewer has been appointed.

Last year, the commission also announced a review visits programme, and Salisbury solicitors' firm Wilsons launched a health check service to help charities facing a visit.

'It has been well taken up,' partner Alison McKenna says.

'There were quite a lot of concerns but as I understand it the visits have not been very hard-hitting.'

The new review and complaints regime seem to be working.

'The commission has got it right on adapting the law over the last two years,' says Stephen Lloyd, head of the charity team at City firm Bates Wells & Braithwaite.

'It has shown admirable willingness in areas where there has been a refusal to look at things and become more flexible.'

He points to the areas of sport, the promotion of healthy recreation and sustainable development, which are now being recognised as charitable purposes.

Ms Protani adds that while the procedure for appealing against decisions is still informal and internal, 'it has worked out very well'.

Richard King, head of Devon firm Tozers' charities and schools team, says of the new review process: 'It is a welcome development, but there is no independent, external reviewer, unlike the separate new procedure for complaints about conduct or service.'

The government appears to agree.

One of the proposals in last year's Cabinet Office strategy unit report about the charity and not-for-profit sector, Private Action Public Benefit, recommends a tribunal where legal decisions of the commission, whether as registrar or regulator, can be challenged.

The tribunal would be overseen by an independent body without the expense or delay of a court application.

There would be an automatic right of appeal covering not just occasions where a person disagrees with the decision, but also where they believed the commission was taking too long to make a decision.

Charity lawyers very much favour this option, even if the commission does not.

Mr King explains: 'It will reduce the tendency of some officials to adopt a "take it or leave it" line, in the full knowledge that no charity lawyer is likely to advise his client to embark on an expensive challenge in the courts if commissioners uphold staff decisions.'

Ms Protani maintains that public, independent appeals are 'essential'.

She explains: 'Professionals such as lawyers and others working in the charitable sector have been banging on about this for a long time and this is finally an opportunity to open things up.'

But Mr Dibble disagrees.

'Our response to the government took the view that we have gone quite a long way to provide internal remedies for people who are concerned about commission decisions or complaints about services,' he says.

The strategy unit report has the potential to change totally the charitable sector's legal landscape.

It is hoped that proposals to create new charities - community interest companies and charitable incorporated organisations - will appear in a Department of Trade and Industry (DTI) company bill this year.

The government has already committed itself to community interest companies for its controversial proposed foundation hospitals.

Abbie Rumbold, a solicitor in Mr Lloyd's team at Bates Wells & Braithwaite, has been seconded to the DTI to assist in drafting legislation to create the community interest company, mainly aimed at enhancing the trading capacity of charities.

Many have been suffering in the current economic climate.

Other proposals from the unit may appear in a charities bill, but the sector is starting to voice fears that reform of charity law is not high enough up the government's agenda to find sufficient parliamentary time this term.

These include plans to codify what constitutes the 'fourth head', with a 'public benefit test' before an organisation can achieve registration.

Last November, a survey by City firm Charles Russell found that 66% of all UK charities were unaware of plans to change the eligibility for charitable status and the strategy unit report in general, but Mr Lloyd says that, at that time, the government had no firm ideas and was just testing the water.

'I don't think anyone would object to the proposed changes apart from a few fee-charging private schools and private hospitals,' he adds.

But one partner, who wished to remain nameless, warns: 'Smaller private schools that cannot open up their facilities to the public may face putting up their fees, and if the parents cannot afford it the school will close.

That means more strain on the public education system which acts against the public benefit.

It seems that the whole thing has become politicised and that was never the case in the past.'

Recommendations for trustees to receive payment for services to their charity and removing the requirement for charities to set up separate trading bodies are also in the pipeline.

Any solicitor who acts as a trustee for a charity is bound to be interested in any move toward payment, says Ms McKenna.

All in all the reforms on the table mean a sea change in charity law - it just remains to be seen how the government will react to its consultation.

The devil will, as ever, be in the detail of any final bill, but lawyers working in the sector maintain that the proposals are generally sensible and long overdue.

Mr Lloyd says that if the strategy unit's recommendations are implemented, they will introduce a very good framework for the next 25 years.

He adds: 'They have struck a very good balance between reform and "steady as you go".'

Chris Baker is a freelance journalist