Housing and Planning Act 2016 Impact of the changes on your governance and regulation June 2016
Welcome and introduction Angela Forshaw
Successful places with homes and jobs A NATIONAL AGENCY WORKING LOCALLY Housing and Planning Act 2016 changes to regulation and governance Mick Warner Deputy Director Regulatory Operations 2 June 2016
Life was already getting more complex for providers Gone: core assumptions about rented products Gone: the grant/bank debt funding model Going: local government funding Complex choices for Boards Opportunities and risks A more cyclical model
2015/16 was quite a year Right to Buy Summer Budget rent cut Reclassification
As a result the business model of providers is changing Existing Stock Right to Buy ASSETS New Development Housing Market Sales Diversification
And the financing of that business is becoming more complex Accounting Issues Hedging Strategies Counterparty Risks LIABILITIES Liquidity Existing Debt Index Linked Debt New Debt
Some cyclical factors are helping the sector for now
m Asset sales are increasingly significant 1,400 1,200 1,000 800 600 400 200 0 Q1 2014/15 Q2 2014/15 Q3 2014/15 Q4 2014/15 Q1 2015/16 Q2 2015/16 Q3 2015/16 Q4 2015/16 Q1 2016/17 Q2 2016/17 Q3 2016/17 Current asset sales value Forecast current asset sale receipts Fixed asset sale values Forecast fixed asset sale receipts
The regulator s attitude to sales risk Like all risks, they are owned and managed by boards The regulator does not set risk appetite We seek assurances that boards and organisations have the capacity to manage their risks And the skills to spot the risks that exist And have evaluated their mitigations in stress testing. Where the regulator does not get that assurance then it will look to engage with boards
Housing and Planning Act 2016 Three main changes for regulation Monitoring the homeownership criteria Housing administration regime Deregulation
The Home Ownership Criteria Still under discussion Regulator s role will be to collect information on compliance with the criteria and report the results to the Secretary of State Failure to meet the criteria will not open up the regulator s enforcement powers The Secretary of State will decide how they use the information The role of the regulator in individual complaints is under discussion
Housing administration Delivers on a key recommendation from independent review of the cosmopolitan case Supplements the existing moratorium provision with a regime based on administration for companies The Act modifies normal administration for the sector, including an ability for the regulator (with SoS consent) to apply for appointment of a housing administrator an objective to maintain social housing in the regulated sector Better suited to providing a managed work out for the larger and more complex businesses that some registered providers have become in the unlikely event of insolvency Will come into force once the Government has introduced secondary legislation and scheme rules
Deregulation Removal of the constitutional consents regime Registration required for certain restructures Removal of the disposals consent regime Introduction of a notification regime for constitutional changes, restructures and disposals Abolition of the Disposals Proceeds Fund (DPF) Amendment of the power to appoint board members and managers
Deregulation Measures deliver on SoS s commitment as part of the RtB deal to deregulate to enable more active asset management and aim to restore sector s private corporations status Providers will have new freedoms, but still need to have regard to charitable vires and loan agreements where providers actions put them in breach of our standards we will respond appropriately and provider will need to ensure that they meet the new notification and registration requirements Consultation on registration criteria next month followed by further details and guidance on notifications Will continue to operate consents functions up to commencement of the new provisions implications for current mergers
Bringing it all together Focus on ensuring we continue to deliver our objectives To promote a viable, efficient and well governed sector able to deliver homes that meet a range of needs Post-consents our standards need to support our more responsive rather than gatekeeping role Four years after introducing the VFM Regulation Committee view is that we need to strengthen our approach on VFM Changes will build on 15/16 update focus on risk management remains Annual stability checks and In Depth Assessments will continue to underpin proactive engagement
Key issues for boards and exec teams to consider What is the right strategy for our business? Where do we want to be in 5-10 years? What do our charitable objects means for us in this new world? What is the right development mix for our business? What is our home ownership offer for our tenants?
What to expect We don t have the answer for your (or anyone else's) business We seek assurance that boards and executives are managing the business effectively and have a thorough understanding of their risks Where we have concerns that this is not happening it is reflected in our regulatory judgements and we look to providers to remedy the situation Where they can t or won t respond then we look to use our power proportionately to bring the provider back into compliance with our standards
Impact of the changes on your governance and regulation a lawyer s perspective Richard St John Williams
The devil is and will be in the detail Act received Royal Assent on 12 th May 2016 Made publically available on 24 th May 2016 However still require: Secondary legislation HCA s regulatory guidance Consultation on registration and restructures May 2016 8 week consultation Still awaiting consultations on disposals and notifications
Constitutional changes Need to wait to see Regulator s guidance for the details re. periods for notifying Regulator and content of details Responsibility on RPs though to: Notify FCA that it has informed Regulator of ToEs, Amalgamations and conversions (CBS) Notified Registrar that it has informed Regulator of conversion to CBS (Companies) Notify Regulator of changes to rules (CBS) Notify Regulator of changes to objects, Articles, registered office and name (Company)
Registrations and restructures Regulator s general obligations Completely new registrations 3 tiers for restructures: Will require formal registration under registration criteria and revised registration process May require formal registration under registration criteria and revised registration process Will not require formal registration under registration criteria and revised registration process Need to think about future assessments, even if formal registration not required
Local Authority board members Mechanism included to limit or reduce ability for Local Authorities to exert influence over private RPs through (i) appointing/removing officers; and (ii) exercising voting rights DCLG to issue regulations Those arrangements will override anything entered into contractually or within RP s constitution
Removal of consent to dispose 2 duties to notify regulator (i) transfer social housing (for all RPs); (ii) transfer land (for non-profit making RPs) For registered charities will need to comply with Charities Act requirements NHF is liaising with Charity Commission but unlikely to be any changes until at least Law Commission report on modernising the Charity law regime for the disposal of land has been published due end of 2016 Whilst report likely to recommend less burdensome regime, suspect need new Charities Act so unlikely to be dramatic changes in the short to medium term Possible to convert to CBS
Converting CLG to CBS If a registered charity, ineligible to continue to be registered with Charity Commission but will become an exempt charity Converting doesn t affect contractual arrangements but need to liaise with principal third parties, such as funders, pension trustees and local authority partners Liaise with HMRC Statutory mechanism and will involve adopting rules in place of article of association; require members to be in favour of the conversion
Financing opportunities and challenges Removes requirement for RPs to seek consent to charge properties as security for finance raised Still need to bear in mind HCA s regulatory framework and in particular not putting social housing assets will apply Remove s. 133 properties built on stock transfer land can potentially now be valued on MV-T basis (tends to be higher) compared to traditional EUV-SH; however, crucial point for negotiation with funders Anticipate increased scrutiny from funders and potentially increased costs of compliance particularly, group structures and property disposals possible funders may require their own due diligence
Developing case for non-rp parallel associations Establishing parallel associations to undertake activity which RPs would previously have undertaken themselves perhaps attractive for future new build affordable rent where no grant involved Because not registered with HCA social housing rent reduction provisions, design standards and voluntary right to buy will not apply Need to consider charitable status - but if charitable and similar objects, charitable group members able to support the parallel association land transfers, loans etc. Also, whilst wouldn t be able to rely on RP relief could rely on charity relief in relation to SDLT
A new insolvency regime (1) Ujima collapse is the only time Regulator had to use the statutory moratorium powers allows 28 working days to identify rescue proposals and obtain approval of RP s secured creditors. Cosmopolitan inquiry highlighted shortcomings of the moratorium arrangements particularly those involving larger or more complicated RP businesses New supplemental arrangements within Housing and Planning Act Regulator has two options available Simpler cases likely to continue with moratorium procedures More complex cases Regulator can apply to court to appoint Housing Administrator
A new insolvency regime (2) The Housing Administrator will have two objectives. Objective 1 - will be the usual administration objectives of rescuing the RP as a going concern or achieving the best results possible for the creditors as a whole. Objective 2 is to keep social housing assets within the sector. The first objective has priority over the second objective so that social housing assets can still be sold out of the sector to meet the liabilities to creditors. The Housing Administrator would have wide powers to run the RP including managing the properties, receiving the rents and dealing with the RP's assets and offers a means of taking a much more planned and co-ordinated approach to a complex insolvency than the appointment of receivers by each of the secured creditors and the ultimate liquidation of the RP's assets.
Contact Richard St. John Williams Partner - Housing and Regeneration d +44 (0)161 838 2097 e rstjohnwilliams@trowers.com Trowers & Hamlins LLP 2016 Trowers & Hamlins LLP is a limited liability partnership registered in England and Wales with registered number OC 337852 whose registered office is at 3 Bunhill Row, London EC1Y 8YZ. Trowers & Hamlins LLP is authorised and regulated by the Solicitors Regulation Authority. The word partner is used to refer to a member of Trowers & Hamlins LLP or an employee or consultant with equivalent standing and qualifications or an individual with equivalent status in one of Trowers & Hamlins LLP s affiliated undertakings. A list of the members of Trowers & Hamlins LLP together with those non-members who are designated as partners is open to inspection at the registered office. Trowers & Hamlins LLP has taken all reasonable precautions to ensure that information contained in this document is accurate, but stresses that the content is not intended to be legally comprehensive. Trowers & Hamlins LLP recommends that no action be taken on matters covered in this document without taking full legal advice. (c) Copyright Trowers & Hamlins May 2016 All Rights Reserved. This document remains the property of Trowers & Hamlins LLP. No part of this document may be reproduced in any format without the express written consent of Trowers & Hamlins LLP.
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