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Lord Phillips of Sudbury: My Lords, I am sympathetic to what the noble Lord, Lord Hodgson of Astley Abbots, has said, and to my fellow practitioners in the field of charity law.

I have two or three questions I would like to address to the noble Lord. First, Amendment No. 84 is drafted on the basis that this definition will apply for the purposes of this Act. It seemed to me from the way in which he introduced his amendment that he would really want the meaning of "permanent endowment", as in Amendment No. 84, to apply for the purposes of charity law generally. There could be a problem if it applies for the purposes of this Bill but not beyond it.

Secondly, it states in Amendment No. 84 that it will not be permanent endowment other than,

"by virtue of a clear and express intention to that effect at the time that such property was acquired by the charity".

I wonder whether using the word "intention" there does not give rise to considerable uncertainty. That would mean that it would not be enough to rely upon a deed of gift; one would need to see whether or not there was a letter to the charity, accompanying the deed of gift, saying "My intention, of course, is that you should keep this for ever", or words to that effect. That would undo the purpose behind this otherwise admirable amendment.

Finally, is it the noble Lord's intention that, if passed, this amendment would be effective for past gifts? Would it have the effect of translating existing permanent endowment into non-permanently endowed assets? I would be grateful if the noble Lord could enlighten the House when I sit down. If, as he said, the law was hitherto clear as to what permanent endowment was, albeit on a negative basis, there would be many donors in the past who, on the basis of the law as it then stood, would have made gifts which they intended to be held as permanent endowment and which are held as permanent endowment but which, by reason of the amendment, would cease to be held as permanent endowment. That does not seem to me to be a satisfactory or fair state of affairs, but I put those points forward in a constructive spirit, merely designed to make the amendment shockproof.

Lord Bassam of Brighton: My Lords, I am grateful to the noble Lord, Lord Hodgson of Astley Abbotts, for his explanation of the amendment, and the noble Lord, Lord Phillips of Sudbury, for raising his
 
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questions. They reflect some of the concerns that we have had in looking at the proposed changes to the clause.

As we have noted, the effect of the amendment to be inserted after Clause 42 is to create a presumption against permanent endowment. I hope that the House will indulge me while I spend a minute or two explaining what happens at the moment. It is worth noting that the Charity Commission does not operate a presumption that property is held as permanent endowment. It makes the best assessment of what restrictions apply to the property by looking at the trusts on which the property is held and, if those are not conclusive, at other available evidence.

If that evidence indicates that particular functional land and buildings which the charity trustees want to sell is permanent endowment, then there are two different regimes, depending on the circumstances. The commission may or may not require recoupment. "Recoupment" is the replacement, out of income, of the capital sum that has been spent.

The first regime is this: if the proceeds of sale of land and buildings are to be applied in the purchase of other land and buildings to be used for the purposes of the charity, the commission does not require recoupment of the proceeds of sale. If, however, the proceeds of sale are to be applied wholly or partly in the provision, improvement or development of buildings, the commission would normally require recoupment. In this case, land is effectively being exchanged for buildings. The basis for the distinction between the two regimes is that land has perpetual existence and buildings do not.

I know that it is sometimes difficult for some charities, such as schools, to determine the trusts on which different parts of their land is held, because the school premises may have been put together over many years—in some cases over many centuries—and acquired in several different ways at different times. However, we do not think that the ordinary law of evidence should be interfered with in this way. The nature of the trusts attaching to particular property should continue to be determined in accordance with established legal principles.

Amendment No. 84 would apply to existing charities. The original founders and donors to existing charities would therefore find, if the amendment were passed, that the goal posts had been changed in that the commission would have to start presuming that all property was not permanent endowment. Even if there were some evidence, falling short of a "clear and express intention" by the donor—that it was intended to be permanent endowment, the commission would have to presume that it was not. We argue that this cannot be right, not least because there has never been a requirement on a donor to state a "clear and express intention" in order to establish the donated property as permanent endowment. Once the restriction on permanent endowment is removed, it cannot be put back. In addition, the amendment does not contain any safeguards, unlike Clause 42, which gives a limited power to spend capital.
 
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Amendment No. 83 would include land held on trusts which stipulate that it is to be used for the purposes, or any particular purpose, of the charity in the new power for unincorporated charities to spend capital in certain circumstances. As the noble Lord ably explained, this is directly related to the first amendment because it lifts the restriction on permanently endowed land to allow it to be sold and the capital proceeds of sale expended without any recoupment. Where the trusts on which land is held specifically stipulate that that land is to be used for the purposes of the charity, we do not think it right to override that stipulation and allow the capital sum the land represents to be expended. My earlier comments explaining that the commission does not presume land is permanently endowed, but that it looks at individual circumstances on a case-by-case basis, are relevant here, too.

While I know that for some landowning charities determining which parts of their property are permanently endowed and which parts are not can be difficult, it is not impossible and the commission aims to take a constructive approach in helping, where appropriate.

The current system, whereby the commission, together with the charity, looks on a case-by-case basis at different pieces of property and makes informed judgments according to the available evidence, seems to be the best and most practical approach in the tricky kind of circumstances in which some landowning charities can find themselves. The disadvantages I have highlighted which the noble Lord's amendment would introduce are not insignificant and I am therefore not able to accept the amendment.

Lord Hodgson of Astley Abbotts: My Lords, I am extremely grateful to the Minister for the careful consideration he has given to the amendment. Clearly, for those of us who are not blessed with a law degree, endowment and permanent endowment is tricky territory.

I want to make two comments in response. He stated that the Charity Commission makes no presumption as to endowment. That may be the case, but the law firms which have contacted us do not see it that way. Therefore, at least a couple of the firms experienced in charity law in a way that I am not believe that, in practice, the Charity Commission does not operate in the even-handed, open way the Minister's remarks suggested.

There has been a breakdown of communication, if not worse, between some of the experts in the field and the Charity Commission. The second point was that he talked about the moving of the presumption, which is absolutely right—the amendment seeks to move from half full to half empty, depending on which way one looks at it. That was right and indeed was the purpose behind the amendment.

The noble Lord, Lord Phillips, with his usual forensic skill tore into this on at least three counts. The first question was the purposes of the Act. The purpose was that it should apply in general charity law. I
 
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believed that it did, but the noble Lord is of course expert and will tell me that that will not be the case. The second question was about the use of the word "intention". As he has heard me say many times before, I have not had the benefit of a legal training. I was assured that the use of the word "intention" would not give rise to the sort of problems that he described. I turn to past gifts—permanent endowment. The amendment was intended to move the issue from half full to half empty, except where specific instructions have been given and specific wishes expressed in the past, when the donation was originally made.

I accept that those are tricky and difficult areas. We have had some important questions from the noble Lord, Lord Phillips. The Minister laid out the Govenrment's position clearly. I will talk to those who have forgotten more about permanent endowment than I will ever know and reserve the right to bring back the amendment if there is still an issue that should be dealt with. In the meantime I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 84 not moved. ]

Clause 43 [Merger of charities]:

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