You are viewing 1 of your 1 free articles
Regulator says ‘mismatch’ between income and debt reason for non-compliant association’s rating in landmark court case
A housing association attempting to quash a regulatory judgement which deemed it non-compliant was given the rating by the regulator because of the “mismatch” between its income certainty and long-term liabilities, the High Court has heard.
Inclusion Housing Community Interest Company has mounted a landmark legal challenge against the Regulator of Social Housing (RSH) over the judgment, published in February 2019.
The RSH gave 2,000-home Inclusion – which provides specialist supported housing using a business model based on leasing properties from investment funds – a ‘G3/V3’ rating, indicating that it failed to meet governance and financial viability standards.
At a hearing on Thursday, Justice Martin Chamberlain was told the RSH’s “fundamental issue” with Inclusion is the “mismatch” between the certainty of its income stream and its lease liabilities to investors.
On Wednesday, the court heard that Inclusion was deemed compliant in 2015 shortly after a report by housing consultancy Campbell Tickell concluded it was “at risk of insolvency”.
READ MORE
Inclusion has argued that it followed all Campbell Tickell’s recommendations and strengthened its business through a range of risk mitigation measures since 2015. It also argued that its risk management and financial position had improved since 2015.
But the RSH claims these mitigations do not solve the mismatch income certainty and long-term liabilities.
Among the report’s recommendations was a call for Inclusion to explore inserting break clauses in existing lease agreements.
The association was turned down by investors when it approached them over the insertion of break clauses.
Monica Carss-Frisk QC, representing the RSH, argued that the regulator’s 2015 decision was based on the understanding that Inclusion would take steps to resolve the fundamental issues highlighted by Campbell Tickell.
Using the 2015 social housing rent cut as an example, she argued a sudden government policy change placing its income stream in doubt “could undermine its long-term viability”.
She said Inclusion is “in the hands of the head landlord” if the business faces a crisis situation, and argued it was “not at all clear” that such investors would prefer to renegotiate leases than terminate them and could seek to dispose of the assets as profitably as possible, meaning they could leave the social housing sector.
But Daniel Stilitz QC, representing Inclusion, hit back that investors have been willing to “come to the table” in cases where organisations funded through similar models have got into difficulty.
He described the regulatory judgement as “very poor and flimsy” and said it “doesn’t do the minimum that it needs to do”, while accusing the RSH of being “passive aggressive” in its correspondence with Inclusion.
Ms Carss-Frisk claimed the judgement gave “clear and sufficient reasons” for finding Inclusion non-compliant and “plainly” referred to the perceived mismatch between the association’s income and debt.
Mr Justice Chamberlain will hand down his ruling on the case at a later date.
