General legal issues

Special trusts and permanent endowment

Special trusts and permanent endowment

A charity does not always hold its assets to be applied to further its general objectives as it wishes.  There may be restrictions on the application of a particular fund held by a charity, the charity’s property or its proceeds of sale.

  • Property subject to such restrictions is held on special trusts.  Land held on such trusts is sometimes referred to as functional or designated land, or specie property.
  • The restrictions may arise because of a condition in a gift or in a bequest by will, or because the charity has at some stage taken over the undertaking of another charity with narrower objects.
  • There can simply be restrictions against the use of proceeds of sale for revenue purposes (as opposed to retaining the same as investment capital).  Property subject to such a restriction is known as permanent endowment.
  • A restriction on use can sometimes amount to a restriction against any disposal of the property at all.  An example of this would be where it is clear that there is a requirement that a building or piece of land (perhaps with heritage attributes or with a history of local use) is intended to be held by the charity as it is in perpetuity.
  • It is often not easy to find evidence of the existence of a special trust.  There are various potential sources of information.
  • It is reasonably likely that a special trust may arise if the property was given by will or a lifetime gift, or purchased as a result of a public campaign for funds.
  • Subsidiary trusts noted on the Charity Commission entry for a registered charity may indicate that a special trust exists, especially if the name of the trust indicates that a particular property is involved.
  • Charity Commission documents (schemes, orders or opinions) may be found with other property documents, and other documents noted on the Charity Commission register may provide further information.  The Charity Commission may also have other documentation which the register does not directly refer to online.
  • References in the charity’s accounts to restricted funds or subsidiary trusts may also be an initial indication that property is held on special trusts.
  • Property deeds in a pre-registration deeds file or filed at the Land Registry may also directly or indirectly refer to trust restrictions.
  • There are a number of statutory tools that can be used to deal with particular issues arising under charitable trusts regarding the application or use of property.
  • Land that is subject to special trusts is also subject to statutory rules regarding disposal [Charities Act procedures property held for special purposes]