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Fund-linked association rated non-compliant for governance and viability by regulator
A housing association linked to investment funds has been found non-compliant for both governance and financial viability, in a damning report from England’s Regulator for Social Housing (RSH).
The regulator rated Inclusion Housing G3 for governance and V3 for financial viability, which means it does not meet the regulator’s requirements in either area, in a report published today (see attached).
Inclusion is the largest lease-based provider to receive a judgement from the regulator. According the regulator’s statistics for March last year, it owned about 1,540 homes. Inside Housing understands that the vast majority of these are on long-term leases.
In its judgement, the regulator said that it lacked assurance that “steps within its control should risks crystallise would ensure its ongoing financial viability and that social housing and tenants’ homes are protected over economic and policy cycles”.
The judgement stated that Inclusion’s scenario planning means it has measures and mitigation plans that are designed to provide a period in which it would attempt to renegotiate and amend multiple agreements with its private sector landlords to enable it to continue to operate.
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But the judgement added that “this approach demonstrates that Inclusion is reliant on the goodwill of third parties to agree to renegotiation and amendments to agreements”.
According to the judgement, “if this strategy was unsuccessful Inclusion indicates that, as mitigation, it may explore insolvency procedures”.
It added that this could result in the potential loss of homes from the regulated sector, and added that there had been “inadequate consideration” of how it would rehouse the adults with physical and mental disabilities currently living in its homes if that were to happen.
The 1,540 homes owned by the association in March 2018 could be significantly larger as it continued to strike new lease deals throughout last year.
The regulator has investigated a number of housing associations with businesses based almost entirely on leasing supported living homes from investment funds since one of them – First Priority – almost went insolvent last year.
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All these lease-based associations to receive judgements from the regulator have been declared non-compliant on governance and viability. These are Trinity, Westmoreland, First Priority and Inclusion.
Inclusion has struck lease deals with real estate investment trusts (REITs) Civitas and Triple Point, as well as a partnership between higher education pension scheme the Universities Superannuation Scheme (USS) and construction company Morgan Sindall.
The regulator’s investigation was unusually long, with Inclusion being placed on the ‘grading under review’ list back in May last year.
Nevertheless, Civitas and Triple Point continued to sign lease deals with Inclusion throughout last year.
Furthermore, Inclusion’s 2017-22 business plan, according to the regulator, envisages that it will grow by 350 homes a year.
The judgement added: “Inclusion has explained to the regulator that its current business plan is predicated upon its material income source (rent) being ‘excepted’ from the requirements of the Welfare and Work Act 2016 by meeting the specialised supporting housing criteria.
“Consideration of the provider’s approach to rents has not informed this regulatory judgement. However, application of the rent requirements is an area that the regulator may explore with Inclusion in the course of ongoing engagement.”
The regulator also said that in agreement with Inclusion, it was now working to improve the position.
In a statement, Inclusion said that it was an award-winning accredited business, unencumbered by debt with a strong balance sheet, increasing reserves, exceptionally low management costs, which offered much-needed quality supported living accommodation.
“Inclusion has demonstrated a strong track record in how to operate the lease model successfully, viably and responsibly and continues to operate as a high-performing and robust business. Our 2018/19 management accounts demonstrate the continuing viability of the business in relation to its anticipated surplus, strong cash flow and strengthening balance sheet – all ahead of budget and heading towards our best ever financial year.”
Inside Housing has contacted Civitas, USS, Morgan Sindall and Triple Point for comment.
In an update to the stock market today, Civitas said Inclusion remained fully up to date with all lease payments due to Civitas, and this was expected to continue to be the case in the future.
Update: at 11.39 on 19.2.19 This story was updated to remove Bespoke Supportive Tenancies from a list of non-compliant housing associations. This association has not received a judgement from the regulator and is on its ’grading under review’ list.
