HCA: Deregulatory measures for social housing

Ahead of the changes coming into effect, the HCA has published guidance and directions for providers about how the new regime will work. They are relevant to both non-profit and profit-making providers of social housing, as well as those who intend to register as providers, and cover three areas:

• Disposals of social housing dwellings;
• Restructures and constitutional changes; and
• Registering and de-registering as a provider of social housing.

Disposals of social housing dwellings

Disposals requiring notification fall broadly into three types:

• Landlord disposals which result in the provider no longer being the landlord of a current or future residential occupier or, if remaining a landlord due to a grant back of a lease or sub-lease, where the term granted to the provider is less than seven years.
• Disposals of occupied and non-occupied dwellings out of the sector, disposals of occupied dwellings within the sector, the disposal of a provider’s final dwellings, and disposals made to a profit making provider will all need to be notified.
• Finance disposals where the purpose of which is to obtain finance. These include disposals to raise common forms of financing such as bonds or bank funding and non-standard forms such as sale or lease and leaseback arrangements.
• Guarantee disposals where the purpose of which is to provide or support a guarantee or other obligation such as the performance of an associated company but not those which relate to financing arrangements.

The notification requirements will differ depending on the provider’s size as a result of other standard returns that are already made to the HCA. Small providers (those with fewer than 1,000 social housing dwellings) will be required to notify the HCA if they dispose of 5% or more of the total stock of dwellings in a single transaction. Large providers (those with more than 1,000 social housing dwellings) are not. Small providers disposing to raise any type of finance are required to notify, whereas large providers need only notify if they are disposing to obtain non-standard types of finance.

In addition, there are differing notification deadlines depending on the type of disposal. Certain disposals require ‘priority notification’ to be made within three weeks of the disposal. All other notifiable disposals must be notified to the HCA on a quarterly basis.

The removal of the HCA consent regime will have a significant impact on providers who are non-exempt charities. These charitable providers were previously exempt from the requirements of charity law because approval for disposal was required from the HCA. This exemption will no longer apply to non-exempt charity providers who will now need to comply with sections 117 – 121 of the Charities Act 2011 when disposing of property. This will mean these charities will need to consider which of their disposals require compliance by self-certification following surveyor’s advice on value, which are exempt under other provisions of the Charities Act and which may require consent from the Charity Commission.

Restructures and constitutional changes

At present, providers are required to obtain the HCA’s prior consent in relation to a wide range of corporate restructures, such as transfers, amalgamations, conversions and group reorganisations, as well as dissolutions. This requirement will be removed, and the headline is that providers will instead need to notify the HCA after the relevant changes have been made. However:

• The HCA will still expect to be informed in advance when the registered provider is “planning” to restructure. The guidance states that if a provider does not communicate with the HCA about such plans in a timely manner, the HCA notes that this “may affect the regulator’s judgment of their compliance.”
• The HCA will need to be notified of a relevant restructure within 10 days of the resolution effecting it, and before the provider files the relevant documents with its registrar (e.g. Companies House or the Financial Conduct Authority).
• In most cases, the restructured body (e.g. the merged entity) will then be subject to a registration decision for which it must apply separately. At this point, that is, ‘after the event’, the HCA will consider whether the restructured body is eligible for registration as a provider of social housing; a registration decision will be required even where the restructuring consisted of a transfer to an existing provider.

The registration decision stage underscores the importance of early communication with the HCA about the organisation’s plans: if providers’ plans are likely to cause problems at the stage of the registrations decision, they should be worked through ahead of time in correspondence with the HCA.

Although the HCA will begin charging fees for certain services from October 2017, the guidance confirms that restructured bodies will not be charged a fee for this type of registration decision.

Conversely, where the registered provider is making relevant changes to its constitution which do not restructure, such as a change to its objects, the HCA should now generally be notified after the changes have been filed with the registrar (within 10 working days of the relevant resolution being registered).

Registering and de-registering as a provider of social housing

Encouragingly, the HCA has added express acknowledgment that in assessing an applicant’s compliance with the registration criteria, it will recognise that applicants will be at different stages in their development and it will take a proportionate approach in assessing compliance. The guidance includes more detailed information specifically aimed at providers that are registered as Charitable Incorporated Organisations (CIOs) than previously, including recognition of the constraints that particularly affect CIOs.

Less encouragingly, from October 2017, a fee of £2,500 will be introduced for a successful application for registration.

Of course, it remains to be seen how the HCA will implement all these changes in practice. In particular, it will be interesting to see how it approaches restructures and the resulting registration decisions; there are obvious potential pitfalls in assessing a provider’s compliance with registration criteria after the relevant changes have taken place. We hope to see the HCA adopt a pragmatic and collaborative approach in its implementation of the new regime.

The guidance and directions are available from the HCA’s website here.

Please contact our Social Housing team if you would like more information on how your organisation may be affected by these changes.

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This information is necessarily of a general nature and doesn’t constitute legal advice. This is not a substitute for formal legal advice, given in the context of full information under an engagement with Bates Wells.

All content on this page is correct as of March 29, 2017.