FCo Rural Estates Newsletter Spring 2022 - Flipbook - Page 17
Enlisting trustworthy trustees
Mr Toad’s charity needs a board of charity trustees. They will be responsible for
governing the charity and directing how it is managed and run. When making decisions
the trustees have a duty to act solely in the best interests of their charity.
In selecting the trustees, Mr Toad must ensure that the board can operate independently
from the Toad family. He has been advised that it would be sensible for the board to
comprise a mixture of family and non-family trustees. Having non-family trustees on the
board will mean that they can take decisions where family trustees might have a conflict
of interests (perhaps arising because they live in, or have a financial interest in, Toad Hall).
The risk of such a conflict of interest may be a very real one, given the character of Mr Toad.
Mr Toad decides to appoint his two sons and his sister as trustees. He also appoints Mr
Mole and Mr Ratty, two local businesspeople who are not connected to the Toad family.
Mr Toad decides that the quorum for trustee decisions will be two, meaning that Mole
and Ratty can take decisions on behalf of the charity where the family trustees have a
conflict of interests. Mr Toad’s lawyers will ensure that the charity’s governing document
sets out clearly how to deal with conflicts of interests.
Can Mr Toad still live in Toad Hall?
Mr Toad is considering transferring the freehold title in Toad Hall to the charity. This
would ensure it is the charity (rather than Mr Toad personally) that is liable for repairs to
the building and, as noted, the charity would have greater scope to seek grant funding
to meet these costs. He will do this on the condition that the Toad family will continue to
occupy the Hall, as they have done since the eighteenth century (by way of a lease by the
charity to Mr Toad). However, what Mr Toad must realise is that he cannot expect to do
that for free (for that would confer a private benefit on him) and so he will need to pay a
substantial rent. Can he afford to do so?
Mr Toad and the charity trustees will seek separate, independent advice in relation to the
transfer of the property to the charity, and the terms of that transfer will be negotiated
accordingly. The charity trustees will also seek specialist advice to determine the
appropriate level of rent to charge Mr Toad. This will reflect the fact that Mr Toad will
make part of Toad Hall accessible to the public, will be negotiated at arm’s length and
take account of nearby comparables in the market.
What about running a business?
Mr Toad’s daughter is keen to expand the family business on the estate and is considering
renting out the orangery for weddings and functions.
These activities should not be run through the charity itself. Trading activities that
do not directly support the charity’s purposes are subject to tax, and incurring a tax
liability could put the charity’s trustees in breach of their duties. They are often also
commercially risky, making them unsuitable activities to be carried out within the charity.
Therefore, Miss Toad has been advised to set up a subsidiary, non-charitable, trading
company to ring-fence any non-charitable profit-making activity. The company itself
can donate any profits it makes (or a portion of them) to the charity through the Gift Aid
scheme, thereby reducing its own corporation tax liability.
Any arrangements between the charity and the subsidiary company must be conducted
at arm’s length to ensure that the charity’s assets are protected from the risks of
trading. The subsidiary’s use of the orangery should be through a formal, written
licence including payment for the use of the charity’s property and any other assets the
subsidiary needs to function.
Rural Estates Newsletter
Spring 2022
17