RSH downgrades non-compliant housing provider to G4/V4 amid ‘serious regulatory concern’

Necessary assurance

 

The regulator said, throughout the engagement, My Space failed to provide the necessary assurance that the issues identified in the original regulatory judgement have been addressed.

 

The RSH said it became “increasingly concerned” over recent months regarding the financial viability, liquidity and governance of My Space and the lack of progress in relation to compliance with the Rent Standard.

 

Harold Brown, senior assistant director for investigation and enforcement at the RSH, said: “We have significant concerns about the way My Space is run, including failures by the board to manage potential conflicts of interest with a connected property developer.

 

“My Space has also failed to provide evidence that it is financially viable.

 

“This is unacceptable. We do not have confidence in the ability of My Space’s board to address the issues we have identified, so we are taking enforcement action to make the provider improve.”

 

Governance

 

The RSH said board oversight and internal controls have broken down with the resignation of key staff and board members, and My Space has acknowledged that several more recent board appointments lack independence.

 

The board has been unable to evidence that appropriate probity arrangements were in place to effectively manage conflicts of interest, the regulator added.

 

The RSH said in its regulatory judgement: “We also lack assurance that My Space is managing its affairs with an appropriate degree of skill, independence, diligence, effectiveness, prudence and foresight, and that it is complying with its chosen code of governance.

 

“As a result, we do not consider the board can provide the effective governance to enable My Space to deliver its aims, objectives and intended outcomes for tenants in an effective, transparent and accountable manner.

 

“The board has not managed the risks to the business effectively and has been unable to provide the regulator with financial information that is based on appropriate and reasonable assumptions.”

 

Financial viability

 

The RSH added that My Space has not been able to provide assurance that it is solvent and appears to be “entirely reliant” on financial support from third parties to continue trading.

 

It said this is “clearly not a desirable or sustainable position”, nor one that meets the regulator’s standards.

 

The RSH considers progress to address the identified issues has been “too slow”, given the gravity of the situation.

 

The regulator said: “The board has been unable to demonstrate that My Space is operating with a robust business planning, risk and control framework and that it is operating with sufficient liquidity at all times.

 

“My Space does not have an adequate long-term business plan based on reasonable and appropriate assumptions and is unable to demonstrate that it can manage and mitigate a range of reasonable scenarios to ensure its long-term viability.”

 

Property transactions

 

The RSH has concerns around a wide range of property transactions My Space entered into with a connected property developer, and these have not been entered into “in the best interests” of My Space.

 

The regulator said the board oversight and due diligence surrounding these property transactions has “not been of the required standard expected”.

 

It added: “The extent of the property transactions and relationships between staff and board members with this property developer has raised serious questions as to whether these property transactions are inappropriately advancing the interests of third parties or are arrangements which the regulator could reasonably assume were for such purposes.

 

“My Space has also not been able to provide the assurance that it fully understands the risks before taking on new liabilities or that it can demonstrate it understands and can manage the likely impact on current and future business and regulatory compliance.”

Rent Standard

 

The RSH said it has worked closely with My Space to understand the basis on which it is claiming an exception from the Rent Standard – that is, its status as an exempt provider. 

 

Following “lengthy engagement”, the regulator said the provider confirmed, after receiving legal advice, that it does not have the assurance that its stock meets the definition of specialised supported housing, and that this exception had been misclaimed for many of its units.

 

The regulator added: “We remain concerned that My Space cannot provide assurance that the accommodation offered by My Space meets the definition of social housing as set out in the [Housing and Regeneration Act 2008].

 

“Whilst the My Space board has committed to work with the regulator to address the issues outlined in this regulatory judgement, we lack the assurance that the current board possess the skills, capacity and ability to lead the change required without the use of our regulatory powers.”

 

Wider investigations

 

The Charity Commission previously launched a statutory inquiry under the Charity Act 2011 to investigate My Space in relation to “potential conflicts of interest and possible mismanagement of funds”.

 

The RSH said it is working closely with the commission, “given the links between our two areas of responsibility”.

 

The commission launched the inquiry in October after an initial compliance case, opened in July, found that over £1m of funds had been paid to nine serving trustees since 2015.

 

In August, the landlord was featured in “The Housing Benefit Millionaire”, an investigation by the BBC’s Panorama documentary series, which looked into property sales worth over £120m linked to My Space and one developer.

 

At the time, My Space Housing addressed a range of issues in its response. The charity acknowledged that it had made mistakes in its governance in the past and it was looking at all of its governance procedures and reviewing and strengthening its board structure. 

 

In response to the RSH’s announcement this week, a My Space representative said it acknowledged the regulator’s concerns. The spokesperson said: “The charity has been working closely with the Regulator of Social Housing since December 2020 and more recently with the Charity Commission, following the BBC Panorama publication.

 

“Whilst the charity is extremely disappointed in the downgrade of G4/V4, it has however acknowledged the concerns of the regulator and shared a robust financial and governance plan to ensure that the charity is able to return to compliance.

 

“Steps are also being taken to ensure that the board of My Space is strengthened and that all regulatory concerns are managed completely and appropriately.

 

“The charity continues to be grateful to the Regulator of Social Housing for the time spent by the regulator on ensuring that governance processes are strengthened at the charity, ultimately for the benefit of our tenants.”

 

Investment trusts

 

My Space is one of the 18 ‘approved providers’ working with Civitas, the real estate investment trust (REIT), and represents 1.3 per cent of Civitas’s rent roll, according to an update to the markets by the investor on Monday (19 December). 

 

In the statement, Civitas said: “Since Civitas has been working with My Space, they have demonstrated a track record of timely rental payments each month in respect of the nine properties. However, more recently rent arrears have occurred which are not material in the context of the Civitas portfolio but are being actively followed up with a view to obtaining payment.

 

“Civitas Investment Management Limited [the company’s investment adviser] is closely monitoring the performance of the company’s properties, including health and safety data, to ensure that they continue to operate in line with the company’s expectations and intended use.”

 

Triple Point Social Housing, another REIT operating in the sector, told the markets in a separate update on Monday that it has leased 34 properties to My Space. These had an aggregate value on 30 September 2022 of £42.8m, or around 6.4 per cent of the group’s portfolio value, and represent 7.5 per cent of the group’s rent roll, it noted.

 

The update stated: “My Space is one of the two approved providers referred to in the group’s interim results for the six months to 30 June 2022 as being in rent arrears, and an associated expected credit loss was recognised in the statement of comprehensive income for the six-month period.”

 

Triple Point said its investment manager was continuing to engage actively with My Space regarding “improvements to its operations, with the aim of increasing rental payments and agreeing a payment schedule in respect of rent arrears”. 

 

It added: “The manager also notes that My Space has sought to address a number of the concerns noted in today’s regulatory judgement. However, as part of the ongoing engagement with My Space, the group will consider whether it is appropriate to put in place alternative arrangements for some or all of its properties.” 

 

In November, a report by the cross-party Levelling Up, Housing and Communities Select Committee said urgent reforms are needed to fix the current system of exempt accommodation, which it called a “complete mess”.