Consider which structure is right for you

Deregulation, alongside a challenging operating environment, provides an opportunity for associations to review their legal structures to ensure they are fit for purpose.

Providers should first consider what type of activities they are currently undertaking and what they are likely to want to do in the future.

“Consideration should be given to whether social and affordable housing would be better delivered through an unregistered charitable trust.”

This will allow an association to select efficient operating models that provide them with the flexibility to respond to both local need and the continual changes in the sector.

If an association is interested in developing open market rental or sale properties, for example, it should consider establishing a separate company.

Doing so could help it to avoid breaching its existing objects and, if also a charity, putting its charitable status at risk.

Proposed changes to government policy seeking to incentivise and encourage local authorities back into the housebuilding market, and boost the participation of SME house builders, has reinvigorated joint ventures and collaborative working arrangements. When considering such opportunities, careful attention should be paid to ensuring the most appropriate delivery model is selected.

Issues including the number of participants, what each is to contribute, the duration and whether the intended aim is to deliver a one-off scheme or a pipeline of development will all have an impact on determining the best legal structure to deliver a successful collaboration.

For those providers planning to develop more affordable or social housing, consideration should be given to whether it would be better to deliver these through an unregistered charitable trust.

Using an unregistered charity to deliver social and affordable housing could provide associations with greater rent-setting flexibility and control.

Through its charitable status, it would also protect the organisation’s fundamental objective to provide housing to those who cannot afford it on the open market.

While deregulation has provided some new freedoms, it has also altered regulatory requirements for providers that are also non-exempt charities.

Such organisations must be mindful that they now have to comply with the provisions of the Charities Act 2011 when disposing of or mortgaging land, unless one of the limited exceptions applies.

For providers considering setting up an unregistered charitable entity, thought should be given to the type of structure to incorporate. For example, charitable community benefit societies are exempt charities and the Charities Act 2011 restrictions on the disposal and mortgaging of charity-owned land do not apply. An unregistered community benefit society could provide the best of both worlds – bringing all the benefits that come from charitable status, combined with the freedom to operate their own rent-setting policies.

Providers that are currently structured as non-exempt charities may also be considering whether converting to an exempt community benefit society would be beneficial.

However, the perceived benefit of exempt charitable status will need to be carefully balanced against the potential issues that could arise on such a restructuring.

Any conversion will involve legal and administrative costs and there may be a number of contractual and practical matters that need to be considered.

“The perceived benefit of exempt charitable status will need to be carefully balanced against the potential issues that could arise on such a restructuring.”

For example, such a restructure could trigger consent requirements in funding documentation, obligations in stock transfer documentation or restrictions in Section 106 agreements. Ultimately, boards will need to be satisfied that a change in legal structure will support their planned and future strategic aims.

Before deciding to take the leap and switch to a new legal structure, or indeed operate more than one, associations should consider whether they have the right depth and breadth of in-house expertise to support the changes.

Strong leadership is obviously important, but boards increasingly need access to experienced individuals who understand how to use different delivery vehicles to optimise profits.

It is also essential to review internal governance arrangements to ensure new structures can be managed appropriately and resources shared effectively.

In summary, with continued uncertainty in the operating environment, providers must decide what they want their organisations to look like in the future.

Deregulation has opened the door to new possibilities and policymakers seem determined to keep local authorities, developers and associations focused on building more homes.

Stepping into new markets could seem daunting, but for well-run associations that have the right skills and structures in place, it could be a move that delivers tangible benefits.

Rachel Gwynne, legal director, Shakespeare Martineau