The Charity Commission recently published guidance on when English charities should or must either refuse or return donations. This guidance also applies to universities as these institutions often receive substantial funds through donations for scholarships, new buildings, and so forth. Accepting those donations could come with significant risks and, when things go wrong, trustees find themselves often trying to balance the requirements of charity law with reputational risks and operational considerations.
The system of when to say no was complex and the Charity Commission’s new guidance raises as many questions as it answers. The benefit of such guidance is that it provides the relevant considerations as well as the reasonable steps to take to avoid falling into troubled waters. The guidance sets out circumstances when a charity must either refuse or else return donations and the factors to take into account when making such a decision.
The guidance also makes clear that grants can be either a donation or a contract. In this case, the Charity Commission advises seeking legal advice to understand the nature of the grant as different legal rules apply.
Mandatory refusal or return of donations:
Regarding the refusal of donations, the first category relates to donations that come from illegal sources or conditions. The mental ability of the donor is also another reason to refuse or return the funds. Another category is goods or properties that cannot be legally given to the charity, as the donor does not own it. Finally, the charity should refuse or return a donation that “under the terms of the donation, must be returned in certain circumstances. For example, a grant agreement that says that your charity must return any unused funds by a particular date, or return any funds that cannot be used for the purpose for which they were given”.
Likely refusal or return:
The guidance summarises some circumstances in which refusal or return of a donation may be necessary. First, when the gift is for purposes that fall outside the charity’s purpose. Second, accepting the gift would result in a valid legal claim or risk of a claim against the charity. Third, the donations come with conditions that may prejudice the charity’s independence. Fourth, the burdens outweigh the benefits and, finally, there may be insufficient public benefit or non-incidental private benefit.
In those cases, the guideline suggests first trying to find a solution with the donor, for instance by changing the terms of the donation. This flexibility is quite important for universities, as some gifts can be restricted to benefit particular groups of students and might need to be refused.
One of the lacunae of the guidance is that it does not clarify how to return a gift. The return of donations has always been a problematic question. The guidance does not reflect the difficulty that charities sometimes face in returning funds. Instead, it stipulates “Your charity’s governing document will usually include provisions that allow you to return a donation, but you must check this before deciding to do so”. It also suggests that charities rely on the general power or the power to dispose of charity property to return the gift. As the funds will be considered charitable assets, they cannot normally be returned easily. The return of the donation must be an appropriate exercise of the charity’s power.
Implication:
This guidance does not replace the need for a robust due diligence process to identify and understand the potential risks relating to accepting a donation. However, providing clear categories of gifts that should be refused and those that are likely to need to be returned if accepted. The obligations of charities will necessarily depend on their circumstances and, while the return of the gift sounds very simple from the guidance, the charity must have the power to do so, otherwise it might face some legal repercussions.