Company Secretary Snapshot - October 2024

Introduction

As autumn settles in, we bring you October’s roundup of key developments in the housing sector. This month’s update covers pressing challenges - from the Sector Risk Profile to the key consultation on proposed changes to Community Benefit Society law - alongside insights from recent conferences and Regulatory judgements. 

So, settle in with your pumpkin spice latte for a quick read on the latest issues shaping our sector and what’s coming down the pipeline.

Sector Risk Profile 2024 

The Regulator of Social Housing (RSH) has published the 2024 Sector Risk Profile (SRP), identifying key risks for landlords in the current economy. The report is essential for registered provider (RP) board members, emphasising financial pressures, compliance with regulatory standards, and the need for effective risk management. Following the introduction of the Social Housing (Regulation) Act 2023, there is further emphasis on revised consumer standards and a range of other tools, such as tenant satisfaction measures and the programme of regular and proactive inspections of landlords with 1,000 or more homes. 

Although the sector remains broadly resilient, many RPs have limited capacity to navigate new challenges, making clear strategic direction and active board management critical, with less room for error in decision-making.

• Strategic Risks: RPs face heightened viability risks as they manage existing stock repairs, high borrowing costs, and the demand for quality, new housing. Boards should:
  
  • ensure robust internal controls, closely monitor financial health (including covenant compliance), and maintain an updated assets and liabilities register;
  • set clear strategies that balance compliance with regulatory standards and financial viability, with some RPs considering mergers for sustainability;
  • address government expectations for new policy compliance (Decent Homes Standard, energy efficiency) and support the commitment to deliver 1.5 million homes over five years, while integrating tenant feedback into service decisions
• Existing Stock: The SRP stresses the need for safe, well-maintained homes that meet the Decent Homes Standard. Boards must:
  • implement comprehensive safety systems and maintain complete, up-to-date stock condition records;
  • deliver timely repairs and maintenance, maintain tenant communication, and prepare for evolving standards, particularly around net-zero requirements;
  • ensure full compliance with health and safety legislation, as the RSH now holds greater enforcement powers to ensure that RPs are meeting these standards.
• Development and Sales: The health and safety of tenants in their homes and communal areas remains a fundamental responsibility for RPs. Boards must:
  • ensure effective safety management, prioritising timely completion of remedial work, especially for high-rise buildings;
  • actively manage risks around damp, mould, and fire safety following tragic incidents like Grenfell and Awaab Ishak’s death, using accurate data and tenant feedback to address issues.
• Finance and Treasury Management: debt continues to account for the majority of financing in the sector. At the end of June 2024, RPs had agreed facilities of £131.7bn. In aggregate terms, forecast sector interest cover over the next 5 years has fallen to 111%. The sector’s effective interest rate has risen from 4.1% to 4.6%. To manage challenges in this environment, RPs should:
  • engage early with lenders to communicate any risks to covenant compliance due to necessary safety expenditures;
  • establish robust treasury management practices to monitor loan covenants and prevent breaches, ensuring effective risk mitigation.
• Costs and Inflation: the impact of inflation and resource shortages has lessened in recent months, with inflation reducing to 1.7%. However, skilled labour shortages and the need for the delivery of programmes of major repairs and maintenance exert pressure on operating costs. Boards should:
  • understand and stress-test cost bases, develop clear strategies for essential services, and manage recruitment and retention in a challenging labour market;
  • stress test plans to ensure strategic contingency plans are in place for future pressures, including potential interest rate increases.

Read the Sector Risk Profile 2024 in full here. 

Law Commission consultation on co-operative and community benefit society law – key points

The Law Commission’s recent consultation introduces several significant proposals that, if enacted, could reshape the regulatory landscape for registered providers of social housing (RPs) registered as Community Benefit Societies (CBSs). Key proposals include:

1. New definition for CBS membership requirements: one of the most impactful proposals is a statutory requirement for CBSs to implement voluntary and open membership, ensuring that anyone can join with a “one-member, one-vote” rule. While the consultation considers whether open membership should be an aspiration rather than a strict requirement, any move in this direction would likely prompt housing providers to reassess their current governance structures, which often feature closed memberships limited to board members.
2. Loss of exempt charity status: another notable change would revoke the “exempt charity” status for charitable CBSs, obligating them to register with and be regulated directly by the Charity Commission. This shift would subject CBSs to the full scope of the Charities Act, bringing additional oversight and stricter requirements, especially around property disposals and governance practices.
3. Interest rate caps on investments and borrowing: proposed changes to financial regulations include limits on interest rates payable on CBS investments, deposits, and loans, restricting them to rates deemed “reasonable.” This cap could impact the ability of CBS RPs to secure flexible funding at competitive rates.

These changes could have substantial consequences for CBS RPs if enacted:

• Governance Reforms: a move to open membership could disrupt current governance practices, requiring RPs to restructure membership frameworks. This could affect decision-making, particularly for shareholder votes on key transactions such as mergers, acquisitions, and other strategic decisions, potentially complicating rescues or forced mergers. The consultation also proposes that board member duties should align more closely with the Companies Act 2006 which may require CBS boards to adopt more formal governance practices.
• Increased Regulatory Burden: the removal of exempt charity status would mean more rigorous oversight from the Charity Commission. Charitable CBSs would face additional compliance obligations, especially around property disposals and intra-group transactions. The typical 40-working-day processing time for Charity Commission approvals could introduce operational delays and affect transaction timelines for time-sensitive projects. If enacted, charitable CBSs would need to develop systems for enhanced compliance with the Charity Commission, including new governance and reporting protocols.
• Financial Constraints: interest rate caps could limit CBSs’ financial flexibility, especially in an environment where securing competitive funding is essential for growth and development. To address new limits on interest rates, CBSs would need to re-evaluate their funding and investment strategies and closely monitor regulatory developments around financial restrictions

While some proposals, like the ability to conduct virtual meetings, are viewed positively, these new restrictions on governance and finance could disrupt established operating models for CBS RPs.

Historically, implementing proposals from Law Commission consultations has been a lengthy process, often taking years from consultation to law. This consultation, open for feedback until 10 December 2024 with a report expected in 2025, provides a critical opportunity for the housing sector to influence the final recommendations. We are coordinating a detailed and robust response to emphasise the sector’s concerns. If you would like to share your insights or have specific issues you’d like addressed, please get in touch with Rose Klemperer to contribute.

The sector’s first C4 grading 

Following our September Snapshot, which examined recent consumer gradings, we now see the first-ever C4 grading issued by the Regulator of Social Housing (RSH), concerning the London Borough of Newham. 

The RSH’s decision centres on Newham’s “serious failures” identified during inspection, compounded by the Council’s failure to self-refer. The inspection uncovered critical deficiencies in several high-stakes areas, including:

• electrical safety: inadequate compliance with required electrical safety standards;
• fire safety: including the absence of functioning smoke and carbon monoxide alarms in certain properties;
• property condition knowledge: a fundamental lack of information regarding the current state of their housing stock;
• repairs service: systemic problems within their repairs and maintenance services; and
• Tenant Satisfaction Measures: a lack of completed Tenant Satisfaction Measures surveys.

The RSH’s assessment emphasises that their focus extends beyond simply identifying issues. They require local authorities and housing providers to have comprehensive, actionable plans for remediation. The grading reflects not only the current state but also evaluates the organisation’s capacity and commitment to rectify identified deficiencies.

This case serves as a critical reminder to all providers that the RSH expects not only an accurate assessment of operational challenges but also a proactive, transparent approach to resolution. Housing providers must prioritise thorough self-assessment, swift corrective action, and clear, consistent reporting to remain compliant with regulatory expectations.

Key takeaways from the Inside Housing Regulation and Governance conference

Key insights emerged from the Inside Housing Regulation and Governance Conference on 17 October, focusing on financial, operational, and governance challenges within the housing sector:

Financial and operational pressures

• Housing associations face unprecedented financial pressures akin to the 2007/08 crisis. The sector must prepare for upcoming regulatory and policy shifts, including rent settlements and compliance requirements (Awaab’s Law, Competence and Conduct Standard etc.).
• Both local authorities and housing associations are grappling with social housing provision challenges, compounded by rising costs and financial constraints.
• The RSH emphasised the importance of transparency and proactive planning, urging organisations to prioritise safe and secure housing while stress-testing their resilience against regulatory changes.

Housing Ombudsman and complaints

• London, as a complaints hotspot, accounts for nearly half of all complaints despite housing only a fraction of social homes.
• Some organisations prioritise positive news over systemic improvement, underscoring the need for transparency, especially during mergers or stock transfers.

Risk Management and assurance

• When it comes to assurance: “celebrate the reds and question the greens”. Red shows that something has come to light and is being dealt with. 
• Effective risk management requires scrutiny and specialised support. Tenant involvement in governance, through structures like customer/complaints committees, is increasingly necessary for authentic oversight.

Financial sustainability and future pressures

• The sector faces a significant £8 billion repairs bill, intensifying financial challenges;
• A sustainable rent settlement is essential, with Tenant Satisfaction Measures (TSM) data potentially affecting funding ratings and borrowing costs.

Events you may have missed

Health inequalities faced by Gypsy, Roma and Traveller communities  – 21st November, virtual
Cyber Risk, Response and Claims – 26th November, virtual
Experiences in the Coroner’s Court – 5th December, virtual
SID Network – 15th January 2024, virtual 

AOB

The Employment Rights Bill – “the biggest upgrade to workers' rights in a generation" 
Employment Eye - October 2024 
Renters’ Rights Bill – Spotlight on: Tenancy Reform 
Housing Finance Snapshot October 2024 
Preparing your housing stock in order to support new funding 
Renters’ Rights Bill – Supported Housing Providers focus: New Grounds for Possession 

For more information, get in touch with Rose Klemperer, Felicity Hercik, Sarah Orchard and Renee Tombs.

Legal Update Service

As you will be aware, all RPs are required to meet the Governance and Financial Viability Standard requirement to comply with ‘all relevant law’, and make certifications in their annual accounts in respect of this.
 
With so much change in the sector at the moment, it can be difficult to monitor, interpret and implement requirements. We offer a variety of services to enable you to demonstrate compliance, including a subscription-based legal update service covering key legal, regulatory and policy changes within the social housing sector.
 
Our approach has been created in partnership with the sector, for the sector, and moves away from a ‘tick box’ approach to a meaningful tool, enabling you to:

• integrate the product into your control and risk management frameworks
• easily and quickly identify priority actions and access tools to assist with this
• empower and inform your teams to take responsibility for effecting such actions
• confidently report back to your Board on key risks areas and how these are being addressed.

To find how you can subscribe and watch our video introduction to our legal update service, please contact Louise Leaver.