Housing Associations — 5 key concerns with proposed changes to governance and funding arrangements

Registered providers of social housing that are incorporated as community benefit societies are likely to be aware of the ongoing consultation from the Law Commission (at the request of HM Treasury) concerning a review of the legal framework that governs co-operatives and community benefit societies.

The consultation closes on Tuesday 10 December and — since it may have far-reaching ramifications — is something that everyone involved in the governance of housing associations ought to know about and be commenting on.

At 229 pages, the consultation document is lengthy. Some of the proposals — such as expressly allowing online meetings, allowing more flexibility when executing documents, making lists of board members readily available on the FCA website and incorporating the director duties requirements from the Companies Act — are either sensible alignments to Companies Act companies (which are often part of a group structure anyway) or enact what’s already happening in practice. 

Here, our Head of Housing and Communities and experienced governance lawyer Rupert Gill identifies five key proposals that could be a cause for concern…

1. Charity Commission registration

Housing associations that are community benefit societies with charitable objectives are known as exempt charities — meaning that they have charitable status but aren’t registered with (or registrable) by the Charity Commission.

Over the years, we’ve converted many housing associations that were registered charities to exempt charity status — partly to avoid being subject to dual regulation by the Charity Commission and Regulator of Social Housing.

The proposal is for exempt charities to now be registered with the Charity Commission. The logic appears to be because exempt charities have no principal regulator — a requirement of the existing legislation. Yet the consultation appears to ignore the reality that housing associations are already heavily regulated by the Regulator of Social Housing and subject to charity law. 

Our view is that requiring the dual regulation will be overly onerous, have unintended consequences — such as potentially reinstating more onerous requirements for disposals of land — and place additional pressure on the Charity Commission, which is already concerned about the resource requirements that this would have, initially for registrations but then for ongoing compliance and monitoring. 

Accordingly, we would recommend that consideration should instead be given to the Regulator of Social Housing being designated as a principal regulator.

2. Memberships ‘open to all’

One proposed amendment to the statutory definition of what a community benefit society is would require membership of that society “to be open to all”. 

While the consultation acknowledges that this may not be appropriate for every CBS, it does support the principle — despite not setting out what it means by ‘all’. For example, does ‘all’ refer to every member of the community that the association is there to serve — or does it extend even more broadly than that?

This change would be contrary to how many associations structure their shareholding membership and we would recommend that comments are submitted on this area of the consultation.

3. Voting rights

It’s also proposed that shareholding members would be entitled to vote on a “one member, one vote” basis. Since we know of associations that have had more complicated voting structures, this may be important for them to comment on. 

While many associations limit their shareholding membership to board members, if the membership is opened up this issue might become more relevant.

4. Interest on loans

This proposal is that “any rate of interest on loans should be no more than is needed to obtain necessary funding”. 

On the one hand, this seems self-evident. Why would an association pay more for a loan than it had to? Our concern, however, is whether this inhibits choice. For example, an association might choose a higher interest rate because the other loan terms provide greater flexibility — so would this be permitted?

We also anticipate that any such requirement will give rise to legal opinions being needed on the point for any lending — thereby increasing costs.

5. Suspension of loan repayment

The consultation proposes that “payment can be suspended when the society cannot afford payment”.

We’re unclear on how this fits with the contractual obligations of an association under its funding documents and the subsequent concerns this might cause funders. Also, do the provisions of the Insolvency Act not already provide the protection that creditors need if an association is in difficulties?

Our housing team is here to support you

We accept that there are many community benefit societies that aren’t housing associations. However, housing associations form a significant number of the 1,500 or so community benefit societies that exist —we’re concerned that the consultation fails to recognise the practical realities of these significant and highly regulated businesses that have carefully structured their governance and funding arrangements.

We’d encourage you to respond to the consultation — just as we will be on your behalf. 

With one of the UK’s largest dedicated housing law teams, we provide housing associations with one single place to go for all your legal needs.

If you need advice on how the consultation may affect you, talk to us by giving us a call on 0333 004 4488, sending us an email at hello@brabners.com or completing our contact form below.