Provider operating short-term lease model found non-compliant
A lease-based supported housing provider that joined the English regulator’s ‘gradings under review’ list last year has been found non-compliant with the governance and viability standards.
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Prospect Housing, which joined the list on 21 November, has been given a G3/V3 rating in its first regulatory judgement after the Regulator of Social Housing (RSH) said it had identified “issues of serious regulatory concern”.
While the majority of the lease-based specialised supported housing providers found to be non-compliant by the regulator take on long-term leases, the RSH notes that the model operated by Prospect is to enter into short-term leasing arrangements with third parties for properties.
“A proportion of these third parties then also deliver the landlord and management services on Prospect’s behalf under an agreement. Some of these third parties with whom Prospect enters into leasing and management arrangements have themselves leased the properties from a range of head landlords.”
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The regulator said that its in-depth assessment and subsequent investigations had found “significant weaknesses in Prospect’s business planning framework; inadequate risk management processes and internal controls; and that the board has failed to manage its affairs with an appropriate degree of skill, diligence, effectiveness, prudence and foresight”.
The 15 May judgement added that the board had failed to demonstrate it has appropriate mitigation strategies in place to “ensure the long-term viability of the organisation and protect social housing assets”.
In its 2019 Statistical Data Return, Prospect reported that it has 1,860 supported housing units.
The regulator also highlighted “significant gaps and inconsistencies between figures contained in its financial plan and key supporting information” and an inability to demonstrate that rent assumptions are compliant with the Rent Standard.
The regulator said that Prospect’s board, with the support of its advisors, has developed a financial and governance improvement action plan in response to the regulator’s engagement, which it is in the process of implementing.
Prospect’s board had also “sought to address the conflicts of interest identified” and had “committed to work with the regulator to address the issues outlined in this regulatory judgement”, the regulator added.
In a statement on its website following the 15 May report, Prospect Housing said it has been working with the RSH over the past two years and accepts the regulatory judgement.
The statement continued: “We have already significantly strengthened our governance practices and improved our regulatory compliance, but fully accept that there is further work to be done. We have strong cash reserves that mean we are financially resilient, but we will improve our financial risk planning to ensure that this remains the case.
“We have a comprehensive action plan in place that will ensure we achieve full compliance and that we continue to deliver the homes and support services that our residents and partners require.”
The latest regulatory judgement takes the total number of lease-based providers found to be non-compliant since First Priority, in February 2018, to 11.
It comes after the regulator told Social Housing in February that concerns remain over the lease-based model of specialised supported housing, with providers not responding fast enough to the regulator’s concerns. Jonathan Walters, deputy chief executive of the RSH, told Social Housing that the regulator would take steps to emphasise its ongoing concerns, a year on from the special addendum to its Sector Risk Profile, which it released in April 2019.
Mr Walters said: “I think the concerns we expressed in the Sector Risk Profile addendum are often not being addressed fast enough by organisations and the fundamental one about the viability of the way the model is being operated is not being addressed sufficiently, we don’t think.”
Mr Walters was speaking in the wake of an unsuccessful challenge against the regulator in the High Court in January by one provider, Inclusion Housing Community Interest Company, which had attempted to overturn its non-compliant regulatory judgement given in February 2019.
Lease-based providers the Regulator of Social Housing has found non-compliant in judgements or notices
Regulatory judgements (providers with more than 1,000 units at last assessment):
- Prospect Housing – G3/V3, on 15 May 2020
- New Roots Limited – G3/V3, on 7 February 2020
- Inclusion Housing Community Interest Company – G3/V3, on 15 February 2019
- Sustain (UK) – G3/V2, on 30 January 2019
- Westmoreland Supported Housing G4/V3 – on 30 September 2019
- Trinity Housing Association – G3/V3, on 8 November 2018
Regulatory notices (providers with fewer than 1,000 units at last assessment):
- Larch Housing Association, on November 2019
- Expectations (UK), on 26 September 2019
- Bespoke Supportive Tenancies, on 8 May 2019
- Encircle Housing, on 10 April 2019
- First Priority Housing Association, on 12 February 2018
Further regulatory judgements on 15 May 2020
In other regulatory judgements published on 15 May, the regulator confirmed the existing G1/V2 grades of Ocean Housing Group while changing the basis of the association’s viability grade. The regulator said that the circa 4,700-home provider has financial plans that support its financial strategy, an adequately funded business plan and sufficient security, and that it is forecast to continue meeting its financial covenants.
It added: “Ocean continues to have a significant exposure to the housing market, including open market sales. Given low rent levels and its underlying cost base, Ocean has limited capacity to manage adverse events alongside the delivery of its current development ambitions.”
Mark Gardner, chief executive of Ocean Housing Group said: “Ocean Housing Group is pleased to have a very positive regulatory outcome of G1/ V2, with the regulator noting the group’s strong governance arrangements; that its financial plans support its business strategy; and that it has a business plan sufficiently funded to deliver its objectives which will continue to meet covenant requirements.
“Cornwall is a low rent environment, having been subject to downward rent reviews in 2002 in addition to the four-year rent cut between 2015 and 2019. The assessment noted that in effect Ocean Group has ‘punched above its weight’ in terms of the provision of new homes, and the group is clear that it remains a committed partner of Cornwall Council in the delivery of much needed accommodation.”
Elsewhere, the regulator confirmed the existing G1/V1 ratings of Nottingham Community (Second) Housing Association.
The RSH’s programme of in-depth assessments has been paused since mid-March during the coronavirus crisis, and it has emphasised that its current viability assessments do not take account of the financial consequences of the pandemic.
Lease-based providers the Regulator of Social Housing has found non-compliant in judgements or notices – 24 July 2020
Regulatory judgements (providers with more than 1,000 units at last assessment):
- Prospect Housing – G3/V3, on 15 May 2020
- New Roots Limited – G3/V3, on 7 February 2020
- Inclusion Housing Community Interest Company – G3/V3, on 15 February 2019
- Sustain (UK) – G3/V2, on 30 January 2019
- Westmoreland Supported Housing G4/V3 – on 30 September 2019
- Trinity Housing Association – G3/V3, on 8 November 2018
Regulatory notices (providers with fewer than 1,000 units at last assessment):
- Larch Housing Association, on 24 July 2020
- Expectations (UK), on 26 September 2019
- Bespoke Supportive Tenancies, on 8 May 2019
- Encircle Housing, on 10 April 2019
- First Priority Housing Association, on 12 February 2018
Lease-based providers the Regulator of Social Housing has found non-compliant, latest judgements or notices – 15 October 2020
Regulatory judgements (providers with more than 1,000 units at last assessment):
- Prospect Housing – G4/V3, on 15 October 2020
- New Roots Limited – G3/V3, on 7 February 2020
- Inclusion Housing Community Interest Company – G3/V3, on 15 February 2019
- Sustain (UK) – G3/V2, on 30 January 2019
- Westmoreland Supported Housing – G4/V3, on 30 September 2019 (and regulatory notice on 12 October 2020)
- Trinity Housing Association – G3/V3, on 8 November 2018 (and regulatory notice on 12 October 2020)
Regulatory notices (providers with fewer than 1,000 units at last assessment):
- Larch Housing Association, on 24 July 2020
- Expectations (UK), on 26 September 2019
- Bespoke Supportive Tenancies, on 12 August 2019
- Encircle Housing, on 10 April 2019
- First Priority Housing Association, on 12 February 2018
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