High Court dismisses lease-based provider’s challenge against regulatory judgement

News25 Feb 2020Sarah Williams

The judge presiding over a High Court challenge by a lease-based provider against its ‘non-compliant’ rating from the Regulator of Social Housing (RSH) has dismissed the claim.

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High Court dismisses lease-based provider’s challenge against regulatory judgement from @RSHEngland #ukhousing

High Court judge dismisses claim by lease-based provider Inclusion CIC that sought to overturn ‘non-compliant’ regulatory judgement from @RSHEngland #ukhousing

Inclusion Housing Community Interest Company had sought a judicial review to overturn its 15 February 2019 regulatory judgement from the RSH, which it had claimed was “unlawful” on a number of grounds.

Mr Justice Chamberlain’s decision to uphold the judgement follows evidence given by both sides in a landmark hearing in the Administrative Court of the High Court’s Queen’s Bench Division on 15 and 16 January.

In his approved judgement, released yesterday, Mr Justice Chamberlain dismissed all five grounds of challenge advanced against the regulator by Inclusion’s QC Daniel Stilitz.

These were: 1) failing to give adequate reasons; (2) irrationality; (3) taking an unlawful approach to risk; (4) unlawfully departing from its own policy on the grading of financial viability; and (5) taking a disproportionate decision, in breach of its statutory duties.

Dismissing the first ground, Mr Chamberlain said: “Against the background of engagement between the regulator and Inclusion over the course of the [in-depth assessment], the reasons given were in my judgement intelligible and adequate. They enabled Inclusion to understand why the conclusion expressed in the [regulatory judgement] had been reached.”

He also pointed to Inclusion’s emphasis on the difference between what it described as its rent model (more commonly referred to as lease-based) versus a “traditional” model, stating: “This dichotomy is part of Inclusion’s own description of the way it operates, but the regulator does not, and does not have to, categorise providers in this way.”

And he queried representations by the claimant that the regulator, in drawing its conclusion on Inclusion’s compliance, had focused on the provider’s position in “an absolute worst-case scenario”, including a change in policy regarding rents for specialised supported housing (SSH).

“I can detect no error of logic or approach in the regulator’s conclusion in the [regulatory judgement] that a change in the policy applicable to those requiring SSH was one of the ‘reasonable risks associated with economic and policy cycles’, rather than what might be termed a ‘black swan event’,” Mr Chamberlain wrote.

He added: “Overall the conclusion in the [regulatory judgement] that there was a ‘reasonable range of adverse scenarios’ in which there would be ‘profound effects on [Inclusion’s] ability to operate in the long term’ was properly open to the regulator.”

Financial viability

Addressing the issue of financial viability, Mr Chamberlain said that the regulator was aware that Inclusion’s reserves had increased, but it also took into account the fact that Inclusion’s liabilities had also been “increasing substantially”.

He wrote: “Inclusion’s total exposure to contractual lease payments was some £431m as at March 2019, having increased by 30% since the previous year. That was plainly relevant to Inclusion’s compliance with the financial viability standard.

“The conclusion that Inclusion was non-compliant with the financial viability standard involved no error of logic or approach. It resulted from a judgement, made by a specialist regulator, which was properly open to it on the evidence it had.”

Responding to the judge’s decision yesterday, Inclusion said that it “continues to thrive financially with year-upon-year strengthening of our balance sheet, cash reserves and surplus”. It added: “Inclusion does the right thing in delivering much-needed specialist supported housing to the disabled and the most vulnerable in society.”

It also pointed to a statement in the judge’s decisions that reads: “As to governance, the regulator accepts that its conclusion was not premised on any identified criticism of Inclusion’s governance arrangements or structures.”

In a statement, the regulator said: “We welcome the decision today (24 February 2020) of the High Court dismissing Inclusion Housing’s challenge to our regulatory judgement following the court’s careful consideration of this matter.

“Our judgement on Inclusion Housing remains in place and we continue to work with the organisation and hope it will take steps to address our concerns. This will help ensure that the long-term interests of the tenants of Inclusion can be best protected.”