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Lease-based provider given G4 after temporarily entering ‘insolvency process’
An equity-linked housing association has been given the lowest possible grading for governance after the organisation entered the regulator’s ‘insolvency process’ for a short period in the summer.
Westmoreland Supported Housing has today been handed a ‘G4’ rating for governance by the Regulator of Social Housing (RSH) – indicating “issues of serious regulatory concern” with the landlord “subject to regulatory intervention or enforcement action”.
It is only the fourth time such a grading has been issued.
In a judgement published by the RSH today, it said.“In July 2019, creditor action taken against Westmoreland (who dispute the debt) led to the provider entering into the regulator’s insolvency process and the commencement of a moratorium.
“A combination of subsequent creditor forbearance and actions taken by the provider and by the regulator meant that the creditor action was withdrawn.”
It added: “However, this is a serious failure. As a result, the regulator has taken steps to increase capacity and skills on Westmoreland’s governing body while it works through the challenging circumstances it faces by appointing [three] new officers to the board under its statutory powers.”
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The insolvency processes that had been triggered by the creditor’s actions have now been halted by the creditors, with the association now working on restructuring its business plan.
The regulator revealed in September that it had appointed three new board members at Westmoreland.
In June, the 1,381-home landlord became the first ever provider to breach the RSH’s standard on empowering tenants.
Today’s regulatory judgement supersedes the G3 V3 rating issued in November last year, indicating non-compliance on both governance and financial viability.
Chapter 1 Charity, Cosmopolitan Housing Group and Venture Housing Association are the only other providers to have been given G4 gradings. All three have since merged with other landlords.
Providers have started the regulator’s insolvency processes before, most notably Ujima Housing Association in 2008.
The RSH report said that while progress “has been made across a number of areas” at Westmoreland since the last judgement, “breaches of the regulatory standards persist”.
Westmoreland has retained its V3 grading based on “the continued support and forbearance the organisation is receiving from its creditors”.
It is currently restructuring its business in an attempt to become financially viable, having posted a £4.7m loss for the 18 months to the end of September 2018.
Westmoreland, which provides housing to people with learning difficulties, is one of a number of supported housing associations operating a controversial lease-based financial model.
It signs long-term leases of specialised supported housing (SSH) from private investment funds. In return, it pays a monthly index-linked fee.
The regulator has said it is “hard to see” how any housing association financed by long-term leases of SSH could be compliant with its standards.
“The Westmoreland board has committed to work with the regulator, and the regulator will continue to engage intensively with Westmoreland while solutions and recovery plans are developed and implemented,” the RSH report added.
Mike Doran, chair of Westmoreland, said: “We have been in discussion with the regulator regarding the recent judgement and accept the position they have taken.
“Over the past five months we have worked hard to improve governance through the appointment of a new chief executive, as well as the appointment of new independent, skilled and experienced board members while previous members have stepped down.
“We welcome the added capacity the three appointments to the board provide and look forward to continuing to deliver an improvement plan for Westmoreland in partnership with the regulator.
“We are also working closely with creditors and landlords to restructure our finances and deliver a new business plan to ensure Westmoreland’s long-term sustainability.”
In response to the latest ruling, two social housing real estate investment trust (REIT) that lease homes to Westmoreland have made statements.
Civitas, the REIT which leases 11% of its housing portfolio to Westmoreland, said it supported the appointment of the three board members to improve the association’s governance.
Its statement to the stock market this morning, Civitas said: “Given the continued improvements that Westmoreland is making, as confirmed by the Regulator in today’s revised judgement, Civitas expects that rating to change in future.”
Triple Point, a REIT which has 15 leases in place with Westmoreland, said in its stock market statement: “The company understands that this was an isolated creditor action as a result of a commercial dispute relating to specific properties (none of which are owned by the company). The creditor action has since been withdrawn.
“All payments under the Company’s leases with Westmoreland continue to be paid on time.”
Update: at 11.40am 30/09/19 a comment from Westmoreland was added to the story.
Update: at 12.13pm 30/09/19 more information was added to the story.
Update: at 12:44pm 30/09/19 a comment from Civitas and Triple Point was added to the story
