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Deregister from the HCA: a realistic option?

30 September 2015 • Jo Loake

With the housing sector in a period of uncertainly like never before, Boards across the country will be considering all available options to help safeguard their organisations’ future. One such option, already being mooted by some, is voluntarily deregistering from the HCA. But what are the implications for housing providers, and do they make it a realistic option? asks Croftons’ Head of Governance & Regulation, Jo Savage.

While there are obvious benefits of deregistration, such as increased flexibility of rent setting and who you house, the criteria you must meet to do so is strict. Legislation allowing for deregistration has three grounds, with associations needing to show they

  1. no longer are, or intend to be, a provider of social housing;
  2. are subject to regulation by another authority whose control is likely to be sufficient; or
  3. meet any relevant criteria for de-registration set by the HCA

The HCA will expect your organisation to demonstrate ongoing financial viability, have satisfactory performance levels and take into account tenants’ views. They will also want to guard against the misuse of public funds and so will consider the amount of any capital public funding outstanding and any planned or current development. The HCA will also consult relevant local authorities.

Social housing, no more
In order to proceed, the HCA will expect to be satisfied that you have transferred your social housing to another association or that it has ceased to be social housing through, for example, selling to tenants or disposing of stock with the HCA’s consent.

If your organisation is one that was existing as at 1st April 2010, is within a group structure, and is non-asset holding, then it will not be eligible for de-registration on the grounds that it is no longer a social housing provider, unless all registered providers in the group can comply with paragraph 1.4 of the governance and viability standard.

Business plans will also have to be reviewed so that the HCA can understand why the association is, or no longer intends to be, a social housing provider.

Regulation and financial viability
Alternative regulatory control that is deemed to be sufficient will focus on its ability to protect tenants and safeguard any outstanding public funding.

The HCA will also require you to demonstrate ongoing financial viability and that you operate on a sound financial basis, and will continue to do so, taking into account financial strength and adequate systems and control.

Additionally, you will need to demonstrate adequate resources to maintain stock, with repairs and maintenance needs being met from rental income. You will also need to identify any capital funding needs and sources, and there is an expectation that deregistering organisations will have no current or planned development, unless small scale and self-financed. For associations with more than 50 homes a stock condition survey must have been carried out within the last two years.

Performance will be assessed by way of demonstrating viability and proper governance and capability of complying with the standards, capability to provide adequate future homes and services to tenants, and evidence that de-registration will not cause a deterioration in the services to tenants below that required by the regulatory standards (even though they no longer apply).

The HCA will publish what it considers sufficient control by another authority as it makes decisions. Membership of an Independent Housing Ombudsman Scheme will be a minimum requirement.

Funding considerations
Associations will be expected to have repaid any loans in full, or have lender agreement to de-register (demonstrated to the satisfaction of the HCA), and you need to be mindful that a change in status could be a breach of loan covenants, and will have tax implications.

Other than in exceptional circumstances, the HCA would expect there to be no more than £2.5 million public subsidy applicable to properties owned by the applicant. This includes a wide range of funding, such as HAG, SHG, RCGF, DPF, and even land transferred to an association at nil or below market value by a local authority. Uncommitted balances on RCGF must be repaid, as well as funds help in the DPF, unless they have been committed.

In any event the applicant must not have received, applied for or generated any public subsidy within the 3 financial years before the date of the application for de-registration. Regional offices of the HCA must be informed as to whether any HAG, SHG or SHA will be immediately repayable on de-registration. Conditions attached to such grants will continue to apply after de-registration.

Tenant consultation
The HCA will require evidence that tenants have been properly consulted, and for associations with more than 50 homes the HCA requires that a majority of the tenants are content with the proposal.

Tenants must be fully informed about changes to tenancies, and agree to them – associations must take legal advice on this matter. The HCA will examine information provided to tenants and the level of responses. The information must clearly explain the loss of statutory rights of tenants and whether the association will be replacing those with contractual rights on similar terms. Tenants must also be advised on the implications of their landlord no longer being regulated by the HCA.

Associations will continue to be bound by section 172 (disposals) if they still own social housing at the time they are removed from the register. If section 133 consent is required, de-registration will not remove this requirement.

If deregistration is an option your organisation is considering, Croftons’ governance and regulatory experts can advise on a number of key areas including:

  • Tenant consultation
  • Tenancy changes
  • Contractual terms to tenants after de-registration
  • Loan agreements and covenants
  • Governance and viability to comply with the HCA requirements and post de-registration
  • Post de-registration continuing regulation with the HCA
  • Regulation other than by the HCA (FCA, Charity Commission)

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