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Regulator declares triple standards breach at two lease-based providers

Two small lease-based housing associations have been declared non-compliant by the Regulator of Social Housing (RSH) on three standards each.

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Two small lease-based housing associations have been declared non-compliant by the Regulator of Social Housing on three standards each #UKhousing

Regulatory notices published today announced that Hilldale Housing Association and Pivotal Housing Association have both breached the RSH’s governance, financial viability and rent standards.

The pair manage stocks of around 800 and 400 units respectively and operate by entering long-term lease agreements with private funders for supported housing in return for index-linked payments, with care and support services contracted out to third parties.

Fifteen landlords using some form of the lease-based model have now been declared non-compliant by the regulator over the past three years.

Both Hilldale and Pivotal have failed to ensure they have effective governance, business planning, risk management and internal controls in place, the RSH concluded.

It added that they are also unable to prove that the supported accommodation they provide meets the relevant government definitions relevant to their ability to charge higher rents than those allowed by the Rent Standard.

Tenants of Hilldale and Pivotal “may have been, and may continue to be, overcharged” for rent and service charges, the regulator said. In the case of Hilldale, the regulator said that this was the situation for the “majority” of tenants.

It described this issue as a “serious matter” which may have “implications for the public purse” as some of these costs are met through benefits.


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Both associations’ inability to prove their stock is exempt from the Rent Standard means they “cannot demonstrate” that their financial plans are “accurate”, the notices said.

Each provider “continues to enter into new leases without fully understanding the risks to its current portfolio”.

In an unusually long regulatory notice, the RSH recounted numerous other shortcomings by Hilldale – including a failure to notify the regulator after having not carried out “a number of statutory health and safety checks”.

It pointed to a “significant mismatch” between the terms of its leases with its head landlords and its contracts with care providers, as well as an “under-developed” business plan that has been subject to “no stress-testing”.

Until April 2020, Hilldale had just one director, the regulator said, and the new board appointed in September “has not assessed itself against its chosen code of governance and has not assessed against the regulatory standards”.

Weak governance means it has “failed to manage potential conflicts of interest arising as a result of transactions between Hilldale and companies connected with its former director” but has since taken action to “review the commercial arrangements and recover monies owed”.

Hilldale is “currently reliant on financial support from its unregistered parent”, Change Housing, of which it became a subsidiary in November.

As reported by Inside Housing, Change was set up by Fairhome Group, a developer involved in supported housing lease deals, to be a “safe haven for struggling housing providers” in response to “investor nervousness”.

The notice for Pivotal also noted that the organisation is “currently reliant on financial support from a third party”, where the “chief executive and director of operations work for both Pivotal and the third party”.

Plans to become financially viable without third-party support are “predicated on future growth”, which the regulator argued “will layer additional risks on to the business”.

The notice added: “In more than half of the properties for which it has entered into long-term leases, it only has short tenancy agreements and void arrangements are not always in place with the care and support providers.

“This means that Pivotal is exposed to long-term liabilities, without certainty over its income in the long term.”

The association has “only carried out limited stress-testing” of its business plan and its risk and control framework “has not been effective”, the regulator added.

Governance at Hilldale and Pivotal has now started to improve and both have committed to working through issues with the RSH, the notice said.

As the pair each have fewer than 1,000 homes, no regulatory gradings have been issued.

Real estate investment trust Civitas Social Housing, a major funder of the lease-based housing association sub-sector, issued a statement to the stock market following the regulatory notices.

It confirmed that Pivotal represents 3.96% of its rent roll and Hilldale 0.97%.

“Both remain fully up to date with all lease payments due to the Company, the levels of which have been tested, and this is expected to continue to be the case,” the statement said.

Civitas added that Hilldale had confirmed that all its properties leased from the REIT “remain up to date in respect of statutory health and safety checks save that certain routine annual asbestos reviews have been delayed to reduce the level of access to properties during the pandemic”.

James Boyd, chair of Hilldale, said: “Hilldale Housing Association is committed to working with the regulator to address the historical issues identified and move the organisation to a compliant position as soon as possible.

“Since the appointment of the new board in September last year we have been identifying areas of non-compliance and working with the recently appointed executive to put in place clear, targeted and resourced plans to strengthen the business and our offer to tenants.

“In November last year, Hilldale joined the Change Housing group, providing us with increased financial stability and strategic support in key areas such as finance, governance and asset management.

“I am confident that the new team at Hilldale supported by the group will work quickly to implement the improvements identified so we can continue to find and provide a range of housing solutions for those that need support to live independently.”

A spokesperson for Pivotal said: “While it is disappointing, it is of no surprise, as we identified some historic issues, as a new board and executive 18 months ago, which needed addressing.

“We have implemented a series of improvements in those 18 months but we recognise there is still more work to do.

“We welcome the closer regulatory engagement and the opportunity to further strengthen the housing association, which we are confident we will achieve.”

Paul Patterson, chief executive of Change Housing, referred to the statement previously published by Inside Housing in the report about it being established by Fairhome when approached for comment.

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