September is a big month at the Royal Albert Hall. Front of house, the Last Night of the Proms is staged on the 12th, with patriotic singing and flag-waving. Behind the scenes, on the 30th, the hall's ruling council faces a demand from the Charity Commission – the culmination of seven years of wrangling - to come up with a radical change to its constitution.
The dispute centres on the fact that the 24-strong council is dominated by 19 people elected from among the hall's members. The members own nearly a quarter of the seats in the auditorium, which they can use themselves or sell either at fixed prices through the box office or on the open market for whatever they can obtain.
For more than a century the private benefit derived from such sales was so small that it was not considered more than incidental to the public benefit of the a hall as a charity. Recently, however, the growing commercial success of the refurbished hall and the ability of members to trade valuable tickets on the internet have raised concerns that their private benefit might now be more than incidental. Three years ago it was reported that some members received as much as £100,000 a year from selling tickets.
In December the Charity Commission, in correspondence with the hall released under the Freedom of Information Act, asserted that "significant profits" could now be made by seat-holders: "The problem has become so acute as to require the constitution to be updated to manage the conflict as effectively and transparently as possible and minimise the real risk that council members will prefer their own interests to those of the charity.
"There is a reputational risk to the charity that may have the potential adversely to affect its charitable activities in the future. The most straightforward way (to amend the constitution) would be to provide for a council with a majority of non-seat-holding members, either appointed or drawn from a wider membership, or both."
The commission has powers under charity law to grant or impose, with ministerial consent, a scheme to modify the constitution of a charitable corporation governed by a royal charter, as is the hall. Last year it asked the hall to draft such a scheme in time for the hall's annual general meeting in May this year. "We consider it essential that this date is met," it said.
That deadline was not met. Instead, the hall decided to review its constitution, telling the commission in March it now had a conflicts policy and committee that could "provide for the proper management of conflicts of interest, within the current constitutional framework". It seems, therefore, that the hall and commission are at loggerheads over changing the constitution.
The commission says it "remains in active dialogue with the hall". The hall says it will respond by 30 September, but cannot say if it will agree to non-seat-holders becoming the majority on the council. The upshot, according to one insider, is that the hall is now facing "an ultimatum", and the stage of this grand British institution seems set for the most serious dispute over public versus private benefit - the foundation of charity law - since the public benefit of charitable private schools was reformulated in court four years ago.
Genesis of a constitutional crisis
So how did this all come about? A key protagonist is a seat-holder and former president of the hall's council, the Hon. Richard Lyttelton. He is an old Etonian who had a distinguished career in the former EMI music empire and bought four seats for £40,000 each after he retired in 2006.
At that time the hall was operating under arrangements that were not in line with the Royal Albert Hall Act 1966, which had been passed to help the hall with its financial difficulties at the time by giving the council powers to exclude members from their seats for a certain number of days a year so that the tickets could be sold.
By the 1990s, the council was granting many more such revenue-boosting "exclusives" than the act permitted, and in 2008 the AGM approved a memorandum that included a proposal to apply to the Charity Commission for a scheme that would legitimise these additional exclusives.
The scheme would have involved reducing members' ticket rights below the level laid down in the 1966 act, but the response of the commission, by then operating under the stricter public benefit requirements of the Charities Act 2006, was that even these reduced rights raised concerns about private benefits for seat-holders.
When Lyttelton became president in 2010, he reached an agreement with the commission that the hall could continue the existing practices temporarily while it drew up proposals to take a tough line on members' sale of tickets and introduce a supplementary seat rate (the rate is an annual amount paid by seat-holders to help finance the hall). These proposals would not have been part of a scheme.
But by now some members were becoming uneasy about the increase in the number of exclusives that had been temporarily legitimised by the 2008 memorandum. In advance of the 2011 AGM, nine members describing themselves as "investors" circulated a letter saying cuts to members' ticket allocations were becoming unacceptable.
The letter, quoted by Lyttelton in a recent witness statement to the Charity Commission, complained: "We should have received six out of 11 Eric Clapton concerts this year – we only received three." The letter also called for a tightening of the definition of the term "concert" that would increase members' allocations and a lower supplementary seat rate than the council proposed.
After what Lyttelton described as "a lengthy, acrimonious and difficult" 2011 AGM, a special general meeting approved proposals for increased member access to longer-running events and a lower supplementary seat rate. The council then declined to support Lyttelton and he resigned "in the interests of the hall as charity".
Early in 2012, The Times revealed the income of some members selling their tickets on the internet. The AGM that year, however, approved a memorandum that further increased members' ticket rights, while adding that two exclusives a year should be given to two national charities.
In 2013 a High Court judge, Sir Robert Owen, was asked by the hall's council to review the operation of the hall. He concluded it was operating lawfully because the AGM was within its rights to modify the number of exclusives laid down by the 1966 act.
Lyttelton then secured an opinion from Amanda Tipples QC, who disagreed: the number could be changed only by a modification of the hall's charter, an act of parliament or a charity commission scheme. "As a result of the 2012 memorandum," she added, "it is possible that the private benefits to members may have ceased to be subordinate to the corporation's charitable purposes."
This prompted Lyttelton to ask the Charity Commission to take the hall off the register of charities, which it declined to do on the grounds that it was "engaging" with the hall on amending its governance. He appealed to the charity tribunal against this decision, but withdrew the appeal in June when told of the 30 September "ultimatum", saying he did not want to distract the regulator.
'Unhelpful and inappropriate'
The hall says Lyttelton's "somewhat absurd" deregistration move was "unhelpful and inappropriate" and claims he withdrew the appeal "after we had made it clear to him that we would take legal action if he did not".
The hall has been developing its public benefit activities recently, including education, outreach and charitable work. Members make many personal voluntary contributions to support such activities, it says, including donating thousands of tickets to more than 50 charity event at the hall each year.
"The commitment to providing public benefit lies at the heart of our operations," says a recent briefing paper. "Our strategy is to ensure that as many and diverse audiences as possible have the opportunity to experience the unrivalled events and architecture of the 143-year-old building."
Ian McCulloch, a council member, says the hall's current governance review is wide-ranging, covering electoral procedures and the size of the council. "The commission is used to trustees being independent of a charity," he says. "The hall is different. It has seat-holders who are trustees."
The commission is particularly concerned by the composition of the council, he says, but the hall sees governance as a much bigger subject: "The commission probably struggles a bit to see how the role of seat-holders fits into the wider constitution of the charity and the benefits they bring. We must explain it to them."
Lyttelton believes it is too late for that; his letter to fellow members says he fears a scheme will now be imposed that is less sympathetic to members' rights than if the hall had acted appropriately earlier: "For this we have to thank those who want to protect their own commercial interests at the expense of our good names and the reputation of the Royal Albert Hall."
THE SEAT-HOLDERS AND THEIR TICKETS
A lucrative market for those who sell seats on the internet
A royal charter of 1866 established the Corporation of the Hall of Arts and Sciences, which financed the building of the Royal Albert Hall by asking investors to buy seats for £100 each on 999-year leases.
The 19 voting members of the 24-strong council that runs the charitable corporation are elected from among these seat-holders. Public bodies appoint another five council members who do not have a vote. The seat-holders can use their seats for each performance, sell them through the box office under the Ticket Return Scheme – in which case they receive between 50 and 100 per cent of the price – or sell them on the open market. In 2013, members sold 59 per cent of their ticket entitlement through the box office.
Their rights to use their seats were restricted by the Royal Albert Hall Act of 1966 so that more tickets could be sold to boost revenue. In 2013, members were excluded from 142 of the 390 shows in the main auditorium, equating to 316,500 tickets.
The seats can be freely traded and formerly changed hands at modest prices. But since the hall was refurbished in 2004 and became more successful, prices have surged. In 2013 a block of 10 seats was sold for £1.25m. Today, about 360 individuals or companies own about 1,300 of the hall's 5,300 seats; companies hold 357 seats. The register of owners is not made public. Owners have one vote per seat at the annual general meetings of the hall.
Authoritative documents seen by Third Sector show that two ticket agencies currently own nine and five seats respectively, and four families own 31, 23, 15 and 41 seats. Current council members and those connected with them own a total of 137 seats. The documents show one seat-holder wrote to others offering £500 and £800 per pair of tickets to an Adele concert and the Last Night of the Proms respectively. "Any tickets obtained on this basis would inevitably have then been resold at a profit," says one document, adding that one member has circulated a guide to selling tickets online.
In 2012, The Times claimed some members were receiving £100,000 a year from "touting" their tickets. Tickets for this year's Last Night of the Proms are currently trading for up to £2,500 online.