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Think carefully before converting to a community benefit society
Saxon Weald Homes is converting to a community benefit society to avoid having to follow Charity Commission land disposal rules. Charlotte Swift explains what associations thinking of following suit need to consider
Inside Housing reported in November that Saxon Weald Homes is preparing to convert to a community benefit society following changes in the requirements for land disposals.
Other housing associations may be considering the move, but it is not a decision to be made lightly.
On 6 April 2017, the requirement for private registered providers to obtain consent from the Regulator of Social Housing (RSH) for disposals of land was repealed.
Up to this point, housing associations which were registered with the Charity Commission did not have to abide by the land disposal requirements in sections of the Charities Act 2011 as consent was being given by another regulator.
Now, this is no longer the case.
These requirements must be followed by all housing associations which are registered charities, resulting in an additional process compared with those that are community benefit societies and registered with HM Revenue and Customs as ‘exempt charities’ which are outside the regulatory ambit of the Charity Commission.
What are the Charities Act 2011 requirements?
In most cases the requirements in the act for disposals of land involve self-certification rather than applying to the Charity Commission for an order.
The Charity Commission will need to be involved where the governing document of the housing association does not allow the disposal, the disposal is to a person closely connected to the charity, or the land is designated land.
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Otherwise, unless the transaction is exempt from the act’s requirements, housing associations would need to obtain and consider a written report from a qualified surveyor, advertise the disposal (unless the surveyor recommends not to), and determine that they are satisfied that the disposal terms are the best that can be reasonably obtained.
There is a ‘light-touch’ regime for leases for seven years or less, which requires the housing association to obtain and consider advice from someone with the ability and experience to advise them. This could be an estate agent, a surveyor or even a suitably qualified employee or trustee.
A housing association may be exempt from this process entirely when disposing of land to another charity whose purposes are no wider than the disposing charity.
The requirements for registered charities can add an extra layer of administration and cost to land disposals but, in most cases, will not be overly onerous.
The Charity Commission provides very helpful guidance on the requirements, which should be carefully reviewed by housing associations before proceeding with the disposal.
What to consider before converting
While it may be appealing to convert from a registered charity (the majority of which are companies limited by guarantee) to a charitable community benefit society to avoid these additional requirements, the housing association should think carefully before doing so.
“New rules will need to be drawn up and agreed before the new entity is registered at the Financial Conduct Authority… this process can be costly.”
Although converting from a charitable company to a community benefit society is not a particularly onerous procedure, it does require a special resolution to be passed by members of the housing association.
In addition, new rules will need to be drawn up and agreed before the new entity is registered at the Financial Conduct Authority (FCA).
This process can be costly, particularly when using model rules of sponsoring bodies.
The housing association should carefully review any finance agreements, contracts and pension schemes to see if any contain restrictions on constitutional changes which may trigger termination or require prior approval.
Instead of being registered and regulated by Companies House and the Charity Commission, a community benefit society will come under the remit of the FCA and remain regulated by the RSH. This is likely to involve less onerous regulation, resulting in less administration for the housing association.
“The housing association should carefully review any finance agreements, contracts and pension schemes.”
However, housing associations should be aware that converting from a charitable company to a charitable community benefit society will not remove the requirement to comply with charity law. Although not regulated by the Charity Commission, a charitable community benefit society is an exempt charity and under the RSH’s Governance and Financial Viability Standard they will be required to abide by charity law.
The community benefit society structure is the most common for housing associations. However, the legal structure of the association is a personal choice and all aspects, not merely the land disposal requirements, should be considered before making any decision to convert.
Charlotte Swift, solicitor, Winckworth Sherwood
