A knotty problem

Community Right to Buy iStock 000012148264Small 120x90A recent Charity Commission investigation highlights the dangers for local authorities who are the sole trustees of a charity, writes Andrew Uprichard.

The Charity Commission published a Regulatory Case Report on 23 March 2012 into the Knotty Ash Special School Trust. This was a charity whose objects related to the provision of special educational needs education in Liverpool. Liverpool City Council was the charity's sole corporate trustee.

The charity's assets were an area of land in Knotty Ash, Liverpool that included the site of a former Jacobean manor house, Thingwall House; a small house called Dovecot Lodge; and an adjoining piece of land with a special school.

The Commission investigated because of concerns in the local media that a council employee had been allowed to live rent-free in Dovecot Lodge since 1989 and also concerns that the lack of use of the land around Thingwall House had led to two arson attacks in 2003 and 2004 resulting in its demolition.

There were three areas of concern in this case, resulting in significant financial outlay by the council.

Breach of trust by the council as trustee in relation to use of charity property

Allowing a tenant (a former caretaker) to live rent-free on the charity's property for more than 20 years was not in the best interests of the charity. Charity property should be used either to further the charity's objects or to generate an income.

Loss of charitable funds totalling over £90,000

This was how much the unpaid rent was worth. The council agreed to transfer £89,000 to the charity's bank account to rectify the loss.

Charity property not being used for any charitable purpose

The charity's property (apart from the special school land) had not been used for any charitable purpose for a number of years, resulting in significant dissatisfaction from local residents, who considered it was a factor in the two arson attacks that had resulted in Thingwall House being demolished.

Lessons for local authorities

This case is a reminder for local authorities who are sole trustees of a charity that they have a duty and responsibility to act in the charity's best interests and ensure the charity's assets are used for its charitable purposes. Here are some top tips:

  • Clearly identify any charitable assets for which you are a trustee and actively manage them
  • Be clear about the charity's objects as they dictate how the assets can be used
  • Be aware of the capacity in which you are acting – when acting as trustee, you are more restricted in how you act, as it must be in the best interests of the charity
  • Manage conflicts of interest – between your interests as a local authority and the charity's interests.

Andrew Uprichard is a partner in the Public Sector and Projects team at Walker Morris. He can be contacted on 0113 283 2500 or by This email address is being protected from spambots. You need JavaScript enabled to view it..