Why proposed legal changes would disrupt RPs’ decision-making and increase regulatory burden

The changes

 

The consultation, which runs until 10 December, makes a number of proposals. The main proposals that would affect social housing providers are two changes for CBSs.

 

These are: the removal of exempt charity status and a new statutory definition for CBSs which would mandate that they must have voluntary and open memberships with one vote per member.

 

Rose Klemperer, partner at Bevan Brittan, says: “These proposed changes are likely to be concerning for many RPs, as they could fundamentally alter the governance structures and regulatory requirements that CBS housing associations currently operate under.

 

“If the proposed changes are implemented into law, the impact on the housing sector – particularly for those registered as CBSs – could be considerable.”

 

The removal of exempt charity status means providers that are CBSs would be required to register with the Charity Commission and be subject to their regulatory remit.

 

“This could mean significantly increased regulatory burden for RPs registered as charitable CBSs,” says Matt Cowen, senior associate at Winckworth Sherwood.

 

Ms Klemperer says the change would be “highly consequential”, “imposing additional layers of compliance and scrutiny”, particularly around property disposals and intra-group transfers.

 

RPs that are CBSs would have to follow a specific process on every property disposal, which make these more difficult.

 

“The requirement to seek Charity Commission approval for land sales or intra-group transactions could introduce delays and increase administrative burdens,” Ms Klemperer says.

 

“There are also concerns about the Charity Commission’s capacity to handle the increased regulatory load, as their standard response time for such approvals is typically 40 working days. This could lead to significant delays for RPs and disrupt their operations, especially for time-sensitive transactions.”

 

Darren Hooker, partner at Capsticks, says that the majority of CBSs currently have a closed shareholding approach, where the only shareholders are the board members.

 

Therefore, he says the proposal for open membership would “obviously be a significant shift” and could mean RPs find themselves with large numbers of shareholders, with each of these having a vote.

 

“That would have an impact in terms of administration and cost,” Mr Hooker says. “It could also be argued that there are better ways for RPs to engage stakeholders in their governance, rather than conferring the limited rights that go along with shareholding.

 

“Offering meaningful resident engagement is something all RPs are required to do anyway under the Transparency, Influence and Accountability Standard. Many RPs would find this proposed change to open membership undesirable.”

 

Gemma Bell, partner at Devonshires, says that open membership could make mergers more difficult as providers could potentially require a “much bigger buy-in”.

 

“The concern is if you have a situation where a rescue merger is needed, as we’ve seen in the past such as when Swan went into Sanctuary, if you have to go out and get consent from 5,000 people, that’s a much bigger ask in terms of getting that through and achieved, when actually there might not be any other option than to do it,” she says.

 

Concern from the sector

 

Lawyers have told Social Housing that they have received plenty of interest from landlords concerned about the consultation.

 

Some highlighted that the main changes that would impact social housing providers are not necessary, and that the sector should respond to the consultation to set out its views on these changes.

 

Sharron Webster, partner and head of governance at Trowers & Hamlins, says that because registered providers that are CBSs are already regulated and have operated well as exempt charities for many years, another extra layer of regulation is arguably not needed and would “be quite unhelpful now”.

 

She added that she believes it should be down to each organisation to determine whether it wants an open membership.

 

“The key thing is, as a sector, having our say and saying ‘do we really need that?’ when we’ve operated as exempt charities in this sector, have a proactive regulator and we do a very good job,” Ms Webster says.

Victoria Jardine, partner and head of housing governance at Anthony Collins, says that she believes none of these changes are “necessary”.

 

“[None] of them would arguably deliver a better outcome than the system we’ve got at the moment, and all of them could potentially be costly in terms of time and money to comply with, and just introduce an additional layer of bureaucracy,” she says.

 

“We and other lawyers who specialise in advising the housing sector have made the point strongly to the Commission that imposing changes such as open membership, one-member-one-vote and forced registration with the Charity Commission would have unintended and potentially unhelpful consequences for the housing sector.”

 

Ms Jardine says that her advice to clients is to respond to the consultation and explain why it would be unhelpful to introduce these changes.

 

Sarah Davis, senior policy and practice officer at the Chartered Institute of Housing, says the group’s main concern is that the proposed changes should not restrict current flexibility to undertake activities that further the aims of co-ops and CBSs in the sector – for example maintaining existing housing, ensuring affordability of that housing, and development of new homes.

 

She says: “The proposal that community benefit societies should no longer be exempt charities (and therefore subject to the Charity Commission’s rules) would potentially result in multiple regulators and different requirements; this would have to be addressed by ensuring that, where these are registered with the Regulator of Social Housing, this is the lead regulator, and no additional requirements are imposed (such as through a memorandum of understanding that exists in Scotland).” 

 

Is it likely that the changes will come into force?

 

Social Housing understands that the Charity Commission is engaging with the Law Commission regarding the consultation and any implications this may have on organisations that hold charitable status and its role as charity regulator.

 

A spokesperson at the Law Commission tells Social Housing: “We don’t currently propose any exemptions from those proposals for social housing providers that are “societies” within the meaning of the act.

 

“However, we would be very interested to hear from stakeholders about the potential impact of our proposals on particular sectors. We will consider all feedback before deciding on our final recommendations, to be published next year.”

 

Elsewhere, Anthony Collins’ Ms Jardine tells Social Housing that the Law Commission has indicated it understands the “significant concerns” that have been expressed about the impact and implications of some of the proposed changes.

 

“The commission has indicated it recognises that the regulated housing sector has a strong interest in the outcome of the consultation, and it understands the significant concerns that have been expressed about the impact and implications of some of the proposed changes, especially around the introduction of open membership and enforced registration with the Charity Commission,” she says.

 

If the changes do come into force, providers would have a long time to prepare.

Ms Jardine says that, while it is important to respond to the consultation, beyond this there is “little point” preparing for any of the changes at the moment because they are “such a long way away from being implemented”.

 

“I don’t think you can do much more than, in the back of your mind, having an idea as to what the changes would mean for your organisation,” she says.

 

Bevan Brittan’s Ms Klemperer says that “a number of clients” have expressed concerns to her about the proposals, highlighting the sector’s apprehension, but that it is important to remember this is still a consultation, and no decisions have been finalised.

 

“Changes to the law resulting from Law Commission consultations typically take several years to implement, so any impact here is not an immediate concern,” she says.

 

“That said, the sector should closely monitor the consultation and provide feedback as robust responses from the sector could help shape or mitigate proposals if it’s clear they may impact RPs.”

 

Trowers’ Ms Webster adds that, while the changes may be a number of years off, if there were indications over the next year or two that the changes will indeed come into force, providers would then need to start to think about the impact.

 

“There could also be a cost to adapting for new legislation, and the last thing the sector needs is another cost,” she says.