APPLICATION OF PROPERTY CY-PRÈS OG2 A1

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OPERATIONAL GUIDANCE

APPLICATION OF PROPERTY CY-PRÈS

THE LAW AND HOW IT SHOULD BE APPLIED

OG 2 A1 – 18 March 2008

Purpose

This guidance explains what is meant by the cy-près doctrine and how it should be applied.

Functional responsibility

For action

Charity Services

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All staff

Contents

1. Circumstances for cy-près
2. Trustees’ duty
3. Application of cy-près doctrine
4. The use of the cy-près principle doctrine where there are secondary trusts
Annex - Further examples of the application of cy-près doctrine
Glossary of Terms used in this Guidance

Index to further related information


The Law	Refer to a lawyer	Refer to an accountant

1. Circumstances for cy-près
	1.1 The legal framework 1.2 Failure of objects not always required

	1.1 The legal framework
	This guidance explains the Commission’s powers to alter the purposes of a charity by Scheme where there is no other suitable power of amendment in law or in the charity’s governing document.
	Section 13(1) of the 1993 Act, as amended by section 15 of the 2006 Act, sets out the circumstances in which the purposes of a charitable gift can be altered so that it may be applied cy-près. These are where:
	(a) the original purposes, in whole or in part:
		(i) have, as far as possible, been fulfilled;
		(ii) cannot be carried out, or not in accordance with the directions given and the spirit of the gift;
	(b) the original purposes provide a use for only part of the charity’s property;
	(c) the charity's property, and other property applicable for similar purposes, can be more effectively used together and suitably applied for common purposes (taking into account the appropriate considerations);
	(d) the original purposes refer to an outdated definition of an area, or a class of people or an area which is no longer suitable or administratively practical, having regard to the appropriate considerations; or
	(e) the original purposes, in whole or in part:
		(i) have subsequently been adequately provided for in some other way;
		(ii) are no longer charitable in law; or
		(iii) no longer provide a suitable and effective method of using the property available (having regard to the appropriate considerations);
	(Section 13 refers to the "original" purposes of the charity, but s.13(3) explains that this means the existing or current purposes if the original purposes have already been amended.)
	The "appropriate considerations" mentioned in s.13(1)(c), (d) and (e) are defined in s.13(1A) (inserted by the 2006 Act) as (on the one hand) the spirit of the gift concerned, and (on the other) the social and economic circumstances prevailing at the time of the proposed alteration of the original purposes.
	Before the implementation of the 2006 Act, our main consideration was the spirit of the original gift. Under the new provisions we will also take into account current social and economic circumstances when considering cases that fall within s.13(1)(c), (d) and (e).
	The "spirit of the gift" in the context of s.13 means the basic intention underlying the original gift as a whole: Re Lepton’s Charity [1972] Ch 276. The intention may be clear from the terms of the governing document of the charity: if not, records available at the time the charity was established, or even the way in which the charity has been administered and managed over the years, may be relevant.
	The meaning of "social and economic circumstances prevailing at the time of the proposed alteration" is not defined, but is about evaluating the ongoing usefulness of the charity’s trusts. This provision enables the Commission to consider other relevant factors alongside the spirit of the original gift in deciding whether a cy-près occasion has arisen, placing equal emphasis on the wording of the original purposes and the needs and circumstances of current beneficiaries. It is clear from the Parliamentary debates on the Charities Bill that the phrase "social and economic circumstances" is intended to be interpreted broadly, and to encompass all relevant circumstances that the trustees or the Commission might need to take into account when deciding how or whether the purposes of the charity should be altered. Other authorities have suggested that this could therefore include environmental, legal, scientific or technological considerations.
	We might take into account, for example, the following:
	In some cases the provision of specific articles such as food or fuel may no longer be the most practical means of relieving financial hardship or other forms of disadvantage.
	Provision of care for people with disabilities is now generally based around enabling them to live in their own homes rather than housing them in institutions.
	In some cases the social or economic circumstances that led to the setting up of a charity (e.g. to provide education or housing) for members of one sex only may have changed over time.
	The objects of some charities may imply outdated social or moral judgements about potential beneficiaries, such as "deserving poor" (historically, poor people who could work but didn’t were officially classed as "idle" and therefore undeserving). These may unnecessarily restrict the beneficiary class. Some objects contain language that could now be offensive or off-putting to potential beneficiaries or donors, such as "crippled", "handicapped", "invalid" or "insane".
	Current social and economic circumstances are not an entirely new consideration in charity law. In the case of Re Hanbey [(1956) Ch 264], which is set out in more detail in OG 2 B2 and B3, the court considered the "social utility" of the charity’s objects as well as the intentions of the founder.
	Consult Legal Division if you are unsure what the "spirit of the gift" is or what "social and economic circumstances" to take account of in a particular case.

	1.2 Failure of objects not always required
	As explained above, a cy-près occasion would arise under section 13(1)(a) if the charity’s purposes failed. The term "failure" has often been used as convenient shorthand to refer to any of the circumstances set out in section 13(1). However, it is important to note that the circumstances which permit a cy-près application of a charity’s property are not restricted to "failure" and therefore the trustees do not necessarily have to demonstrate that the charity’s purposes are incapable of being carried out or wholly impracticable, particularly when current social and economic circumstances are also taken into account.
	In some cases a cy-près application may be justified under the other provisions of section 13(1), even though the purposes of the charity can still be carried out. For example, we can make cy-près Schemes without the current objects "failing" under:
	s.13(1)(b), where a charity’s objects may be completely workable but do not provide a use for all of the available income or property;
	s.13(1)(c), where a charity is proposing to amalgamate with another charity with similar objects; the question of "failure" is irrelevant; or
	s.13(1)(e), which may allow a charity to make a case that the purposes have ceased in any way to be a suitable and effective method of using the charity’s property (bearing in mind the spirit of the gift and current social and economic circumstances).
	For example, an almshouse charity for "poor persons with a preference for a poor gentlefolk couple" could merge with another almshouse charity in the same geographical area whose beneficiaries are "poor persons who (except in special cases to be approved by the Commissioners) have been resident in the area of benefit for not less than five years". In this example, the trustees of both charities were the same, and in practice, administered together. The aim of the merger was to provide greater efficiency and effectiveness in the administration of the charities. Although the first charity does not specify an area of benefit, the objects are sufficiently similar for a merger under s.13(1)(c). In practice the area of benefit for the first charity would be similar to the second charity. In this example, the merged charity’s beneficiaries were amended to "poor persons in particular, but not limited to, those resident in the area of benefit".
	Further information on issues which arise specifically in relation to the merger of almshouse charities may be found in OG 65 B3.
	An example where section 13(1)(e) has been used to enable a cy-près application is where the purposes of an education charity were to hold land to be used as a school. The school is now being run by the local education authority on a different site and therefore a cy-près Scheme was appropriate because the charity’s purposes had adequately been provided by other means.
	Further examples, looking in particular at consideration of social and economic circumstances, are given in the Annex below. We will interpret broadly any consideration of the social utility of a charity’s purposes in considering whether a cy-près occasion has arisen.
	Given the breadth of s.13(1)(e)(iii) ("ceased… to provide a suitable and effective method of using the property available by virtue of the gift"), considering social and economic circumstances is likely in many cases to strengthen the case for a cy-près application rather than permit an application that would have been impossible before the 2006 Act.
	We cannot alter the objects of a charity simply because the trustees would like to use the funds for some worthy but different purpose without one of the factors listed in section 13(1) being present.
	In addition to the powers in s.13(1) of the 1993 Act, s.13(4) gives the court and the Commission power to make a Scheme to enlarge a charity’s area of benefit within the guidelines set out in Schedule 3 of the 1993 Act. These are additional powers and in no way restrict our ability to enlarge a charity’s area of benefit under our other Scheme-making powers. To use s.13(4), it is not necessary to show that any of the conditions in s.13(1) apply, only that the enlargement is in the interests of the charity:

Existing area	Permissible enlargement
1. Greater London	Any area comprising Greater London.
2. Any area in Greater London and not in, or partly in, the City of London.	(i) Any area in Greater London and not in, or partly in, the City of London; (ii) the area of Greater London exclusive of the City of London; (iii) any area comprising the area of Greater London, exclusive of the City of London; (iv) any area partly in Greater London and partly in any adjacent parish or parishes (civil or ecclesiastical), and not partly in the City of London.
3. A district	Any area comprising the district
4. Any area in a district	(i) Any area in the district; (ii) the district; (iii) any area comprising the district; (iv) any area partly in the district and partly in any adjacent district.
5. A parish (civil or ecclesiastical), or two or more parishes, or an area in a parish, or partly in each of two or more parishes.	Any area not extending beyond the parish or parishes comprising or adjacent to the area in column 1.
6. In Wales, a community, or two or more communities, or an area in a community, or partly in each of two or more communities.	Any area not extending beyond the community or communities comprising or adjacent to the area in column 1.

2. Trustees’ duty
	If any of the circumstances set out in s.13(1) of the 1993 Act arise, the trustees must do whatever is necessary to ensure that the charity's property is used effectively and appropriately by taking steps to have it applied by cy-près (s.13(5) of the 1993 Act).
	Trustees should regularly review their charity’s governing document and ensure that the charity’s objects continue to be practical and relevant to its beneficiaries’ needs, and that the charity’s assets are being effectively applied.

3. Application of cy-près doctrine
	3.1 The legal framework 3.2 Our policy

	3.1 The legal framework
	Section 18 of the 2006 Act inserts a new Section 14B into the 1993 Act, which sets out how the Commission’s and the court’s power to make schemes to apply charity property cy-près is to be exercised.
	In deciding how to apply charitable property cy-près, the Commission (or the court) must take into account:
	the spirit of the original gift;
	the desirability of securing that the property is applied for charitable purposes which are close to the original purposes; and
	the need for the charity (or the receiving charity in the case of a transfer) to have purposes which are suitable and effective in the light of current social and economic circumstances.
	Section 14B(4) permits that where a scheme transfers property to another charity, the scheme may place a duty on the trustees of the receiving charity to ensure that the property is applied for purposes which are as similar as reasonably practicable to the original purposes.
	Section 14B(5) defines such property as including any property derived from the property subject to the scheme (e.g. proceeds of sale, substituted or exchanged property).
	These provisions are wider than the provisions that existed before the 2006 Act, where the main guiding principle for the Commission (or the court) was that any new charitable purposes must be as similar as practicable in the circumstances to the original purposes. Now it is clear that the Commission can consider the social utility of the new purposes.

	3.2 Our policy
	We should be flexible and imaginative in applying the cy-près doctrine, balancing usefulness and practicality with respect for the existing purposes and beneficiaries. The purpose of making a cy-près Scheme is to enable a charity to continue being effective, useful and relevant to its beneficiaries’ needs in modern society, where without our intervention it would not be. We should, however, exercise caution where a proposed change might be a significant departure from the founder’s intentions or might exclude existing beneficiaries (unless, for example, the problem is that the existing beneficial class has ceased to exist). We should always take account of the trustees’ views when deciding how to amend a charity’s objects.
	Section 14B(3) directs us to take account of three factors. Generally we should give equal weight to these factors, but there may be circumstances where it is reasonable to emphasise one factor over the other two. For example, if a charity for the relief of poverty operates in an area where poverty is no longer an issue, it would be reasonable to focus almost entirely on finding purposes that are relevant to the current issues in the area of benefit. If on the other hand there is evidence that the values of the founder and of all those associated with the charity mean that the spirit of the gift is important to the future existence of the charity, we should consider how we can ensure that the new objects continue to reflect those factors.
	Careful thought should be given to identifying the spirit of the original gift. Understanding the real purpose of the charity should give us greater flexibility. It would be reasonable to assume that the founder(s) of the charity would be more concerned about who they wanted to benefit, and the kind of charitable benefit provided (e.g. relief of poverty, education generally or in a particular subject, religious belief, recreational or community facilities) than any specific method of delivering that benefit.
	We have applied the following principles in making cy-près Schemes since at least 1989 when they were published in the Commission’s annual report, and they are still relevant. The changes introduced by the 2006 Act give us even greater flexibility:
	Descriptions or classifications of charitable purposes should not be treated as rigid or mutually exclusive. This was particularly important before the 2006 Act, when charities were classified within four "heads" (the Macnaghten classification), but the principle should still be upheld. There is considerable scope for overlap between many of the 13 descriptions of charitable purposes in the Charities Act 2006 and it is acceptable to include new objects which bring in additional purposes as defined within the Act. For example, we could agree new objects for a charity for the relief of poverty that deal with related issues, for example, prevention of poverty, advancement of education, advancement of health or community development (including regeneration). Alternatively, if the charity’s income is more than sufficient to relieve poverty in the area we could provide an additional object for surplus income to be applicable for any charitable purpose. The key consideration is to find new objects that serve existing beneficiaries in an up-to-date and appropriate way and which enable the charity to use any surplus funds effectively having regard to the spirit of the gift and current social and economic circumstances.
	Legal points should be balanced by practical considerations. For example, in the case of a proposed merger, the purposes of the merging charities are required to be similar, not identical. Or taking too narrow a view of what is similar to existing purposes may limit a charity’s future usefulness. This principle is all the more important when considering the social utility of new purposes; we should consider carefully the views of the trustees as to what will be useful to beneficiaries and allow the charity to be effective in view of current social and economic circumstances.
	Care should be taken not to place undue emphasis on one part of a charity’s trusts over another. Where the beneficiaries of a charity are defined by reference to a number of elements (for example poor women resident in a particular locality) care should be taken not to give greater emphasis to one element than another without good reason for doing so. (For example, the charity's foundation or governing document might indicate whether any element is particularly important.)
	In some circumstances it may be acceptable to exclude part of a charity’s existing purposes. For example, a merger of charities should not be discounted because part of the area of benefit or beneficiary group of one charity would be lost as a result.
	No part of a charity’s trusts is unalterable. There is no point in trying to preserve a particular aspect of a charity’s trusts if the new purposes would not, as a result, be suitable and effective in the light of current social and economic circumstances.

4. The use of the cy-près principle doctrine where there are secondary trusts

Charities will often be established with a primary trust and a provision that in the event that the primary trusts cannot be fulfilled, or the trustees feel that they should not go on fulfilling them, the property of the charity should be applied for purpose X, or passed to charity Y. Where trustees come to us to request a Scheme to amend the primary trust the question arises as to whether or not we amend that primary trust, given that to do so would postpone the implementation of the secondary trust. There is legal authority to support our view that we have the discretion to provide new cy-près trusts where any of the circumstances in s13(1) arises, even if that involves causing a failure or postponement of the secondary trusts which remain workable. Equally, we can decide not to make a Scheme, and allow a secondary trust to take effect. For further guidance, see OG 2 B2.

	Annex – Further examples of application of the cy-près doctrine
	1. Finding new ways of delivering charitable benefits 2. Spirit of the gift difficult to identify 3. Parallels with the Reverter of Sites Act 4. Changing social values 5. Identifying the real purpose of the charity

	1. Finding new ways of delivering charitable benefits
	The trusts of some charities (e.g. for the relief of poverty or sickness) specify that the charity must provide particular goods or services (e.g. food, fuel, clothing or medical equipment). By taking account of social and economic circumstances (for example, changes in welfare provision) trustees could demonstrate a cy-près occasion if providing those goods or services was no longer the most practical method of achieving the charity’s real purpose; they would not necessarily have to demonstrate that the trusts prevented or restricted them from applying the charity’s income (although many charities have been able to make a case on that basis).
	Some charities have suggested to us that the provision of a school in a particular building is no longer a suitable and effective means of advancing the education of their beneficiaries and requested instead power to use the resources available to provide internet-based education. This is something that we could consider in the light of current social and economic circumstances.

	2. Spirit of the gift difficult to identify
	Some charities have outdated purposes where there may be no straightforward modern analogy, such as ringing a curfew bell (a warning to put out lamps and fires, dating from times when houses were often built of wood). In such cases it can be difficult to identify the spirit of the original gift or what would be close to the original purposes (a curfew bell is a civil purpose, but usually a church bell was rung and so the trusts would often provide for maintenance of the church building). Taking account of current social and economic circumstances might enable us to be more pragmatic in agreeing new charitable purposes. It would not, however, prevent us from preserving traditions that were valued by a community.

	3. Parallels with the Reverter of Sites Act
	At the time when the Reverter of Sites Act 1987 was first made (see OG 27), it gave us greater flexibility to interpret the founder’s intentions and make Schemes to apply property for new charitable purposes than the corresponding powers in the 1993 Act. For example if there was no longer a need for a school in a particular locality we could give the property new purposes which did not have to be educational, such as a community centre, or use the proceeds of sale as an endowment fund for a charity for the benefit of the community. Cy-près applications of this kind will now be possible under the 1993 Act as we take account of current social and economic circumstances. (For guidance on the Reverter of Sites Act see OG 27).

	4. Changing social values
	Charities have been established to relieve poverty amongst relations and descendents of the founder. We have received legal advice that, where such charities were founded in past centuries, it would not be consistent with the founder’s intentions (or the spirit of the gift) to enable illegitimate descendents to benefit. Taking account of current social and economic circumstances, where views on marriage and illegitimacy have changed, would allow us to make such an alteration to the trusts.

	5. Identifying the real purpose of the charity
	In some cases it can be difficult to identify the spirit of the gift where there are a number of elements to the qualifications of beneficiaries, for example poor elderly women who are members of the Church of England who have lived in the parish for at least ten years. There are a number of elements that we would need to consider:
	financial hardship;
	age-related need;
	disadvantage linked to gender;
	religious belief or affiliation; and
	a wish to benefit residents of a particular locality.
	Relief of poverty, relief of needs linked to age or other disadvantage (including gender) and the advancement of religion are all charitable purposes.
	Whilst the law now requires us to also take account of current social and economic circumstances, we should be careful not to judge the spirit of the gift or the founder’s intentions by our own standards.
	We should look for any indications of the founder’s intentions in the governing document or the administration of the charity (e.g. trustee appointments). If there are links to a particular church or churches, or an indication that the founder held and wanted to express or promote particular religious beliefs (for example, the qualification implies active membership of a church), we might place more emphasis on this element of the trusts. Conversely, if the evidence doesn’t suggest that the founder wanted to directly encourage religious belief or practice (but was merely following social or moral norms of the time) and the trustees don’t consider the religious qualification important, we might consider other elements of the trusts more important. Obviously, we should exercise care in relation to dealing with such issues.
	We should also consider whether elderly people or women continue to experience particular disadvantage in comparison to other members of society in financial need, either in the locality or more generally.
	In some communities there may be a strong wish to benefit established members of the local community rather than new arrivals. If the charity has more resources available than are needed to benefit established members of the community, it would nevertheless be reasonable to shorten or remove the residential qualification or enlarge the area of benefit.
	We might decide to preserve the original beneficiary class and introduce a "secondary" beneficial class who could benefit from surplus income, or demote one of the qualifications to a "preference". This would still involve deciding which of the beneficiary qualifications was least important and could be relaxed in order to define the wider group.

Glossary of Terms used in this Guidance
	1993 Act
	2006 Act
	cy-près
	Scheme
	trustees

Index to further related information

In this section...

1. Circumstances for cy-près

2. Trustees’ duty

3. Application of cy-près doctrine

4. The use of the cy-près principle doctrine where there are secondary trusts

Annex – Further examples of application of the cy-près doctrine

Glossary of Terms used in this Guidance