Grant Agreements for Charities: A Practical Guide | LegalDocuments.co.uk

What this document is

A grant agreement is a written contract between a funder (often a foundation, trust, lottery distributor, or government body) and a recipient charity, setting out the terms on which money is being provided. Unlike a commercial contract, the funder usually isn't buying a service, they're supporting a charitable purpose, but the document is still legally binding, and breaches can have real consequences including clawback of funds.

The agreement will typically name the project or activity being funded, the sum committed, the timeframe, what the money can and cannot be spent on, and what the charity has to report back. It may also cover safeguarding expectations, branding and publicity, insurance requirements, data protection, and what happens if the charity can't deliver what was promised.

For trustees, the key point is that accepting a restricted grant creates a trust-law obligation: those funds can only be used for the purposes set out in the agreement. Mixing them with unrestricted reserves or spending them on something else, even something equally worthy, can put trustees in breach of duty under the Charities Act 2011.

How to use this document

1. Read the whole agreement before signing. This sounds obvious, but grant agreements often arrive alongside offer letters, terms and conditions, and annexes, and the binding obligations can sit in any of them. Make sure whoever signs has read every referenced document, not just the covering letter, and has flagged anything ambiguous back to the funder in writing.
2. Identify restrictions and conditions precedent. Look for clauses that limit how funds can be used, conditions that must be met before money is released (such as match funding being secured), and any milestone payments. Map these against your project plan and budget so you know exactly what triggers each tranche and what spending categories are off-limits under the grant.
3. Set up internal controls for restricted funds. Restricted grant income needs to be tracked separately in your accounts and cannot be spent outside the agreed purposes. Agree with your finance team how the funds will be coded, who authorises spending against the grant, and how you'll evidence that expenditure matches the approved budget if the funder asks to see it later.
4. Diarise reporting and review dates. Most agreements require interim and final reports, and some include site visits or evaluation meetings. Put every deadline in a shared calendar with reminders well in advance, and decide early who is responsible for gathering narrative updates, financial figures, beneficiary data, and any required outcome measures.
5. Communicate early if things change. Projects drift, staff leave, costs rise, activities get delayed. Most funders would far rather hear about a problem early and agree a variation than discover it in the final report. Keep a written record of any changes the funder approves, because verbal agreements at a catch-up call won't protect you if a successor grant manager takes a different view.