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Deregulation: what to look out for from 6 April

30 March 2017 • Jo Savage

What is changing and why?

On 6 April 2017 a number of deregulatory measures will take effect under the Housing and Planning Act 2016. This will provide RPs with more freedoms and flexibility, but the primary driver for the measures is to allow the ONS to reclassify RPs as private by demonstrating their ‘independence’.

The new regime will see the removal of the consents regime. RPs will no longer need to seek the regulator’s consent for disposals (of assets) or constitutional changes (including restructures).

Instead, the measures introduce a notification regime, requiring RPs to notify the HCA of disposals and of changes to governing documents and constitutional arrangements. Different notification timescales are required depending on the action the RP has taken; some will be required within three weeks, and others quarterly.

On the face of it, the deregulation measures are to be welcomed, as they do remove some of the constraints placed on RPs. However, in practice it may become more onerous, because essentially the consent required will now be given by the board, not the regulator. Boards are going to have to be very clear that decision making processes are in place that allow them to make changes and/or disposals because the HCA will still have the power to review notifications, and will continue to carry out IDAs and then question the decision making processes leading to action by an RP.

Financial viability and risk

It is clear that with the deregulation measures comes HCA focus on financial viability. It intends to take a zero tolerance approach to RPs not undertaking stress testing, expects RPs to see charitable objects and vires as key, and be risk aware in terms of risk appetite, management and crystallisation.

It will become more important to put an emphasis on board involvement in decision making, the quality of management reporting, governance and the interface between the board and the executive.

For those RPs that are also registered charities charity law will also apply, and whether there is a need to obtain consent from the Charity Commission will need to be considered. The application of charity law to community benefit societies is not straightforward and RPs should take advice, but certainly it is recommended that as a minimum the charity commission’s guidance should be regarded and followed where possible.

Funding and deregistration

The independence of RPs is something that is likely to have an impact on the views of funders, and it may be that funders scrutinise constitutional changes and loan arrangements in more depth as a result of the deregulation measures. Less regulation could also result in an increase in charges or changes to covenants.

It could be possible, at least in theory, for an RP to deregister and remove itself from the sector, or indeed transfer assets into an unregulated subsidiary. However such a decision would significantly reduce the likelihood of obtaining funding, and if funding is obtained it would inevitable come a hefty price to offset the risk perceived by lenders of an organisation with no regulatory body monitoring its activities or being a back stop in the event of problems arising and risks being realised.

Consultation on the Tenant Involvement and Empowerment Standard

The HCA is also consulting on changes to the TIE standard, as it has said that in light of the deregulatory measures it wants to ensure that tenant consultation becomes key when making disposals outside of the sector. The consultation aims to clarify and strengthen the regulator’s requirements around consultation with tenants when providers are proposing to change their landlord or when proposing a significant change in their management arrangements.

Local authorities

The new measures will also aim to reduce the control that local authorities can have over RPs via constitutions, primarily affecting LSVTs. This could result in decisions being made more quickly, however local authorities may be reluctant to give up their interests. In light of these changes it’s crucial to ensure good relationships, and partnerships, between RPs and local authorities.

On-going obligations

Even after the deregulatory measures come into effect and the requirement to seek the HCA’s consent has been removed, RPs must continue to meet all remaining obligations, including:

  • RPs must continue to meet all of the HCA’s standards.
  • Lender requirements must continue be met. A failure to do so may result in a breach of the standards (in addition to any obligations to a grant funding body or lender).
  • Charity law rules, charitable status and limitations must continue to be observed (whether the provider is a registered charity or an exempt charity).
  • When making any structural changes there will still be a requirement to carry out all necessary due diligence.

What is likely to be the true change in the sector?

The flexibilities offered by the deregulation measures do not place RPs into an unregulated sector. It must still comply with the standards and charity law, where applicable, as well as funder covenants. And it is unlikely that great swathes of social housing stock will be sold outside of the sector given that the notification regime and IDAs still allow the HCA to regulate in order to protect social housing assets.

 

It seems more likely that the freedoms will be used to aid better asset management, such as releasing capital from underperforming and void stock, or to effect stock rationalisation projects with more ease, all of which would allow RPs to apply funds to its objects, build more properties, deliver regeneration and achieve efficiencies.

Click here for full details of the new HCA regulatory approach.

If you want advice about any aspect of governance and regulatory compliance, click here to get in touch with Jo.


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