Two large exempt accommodation providers deemed non-compliant by regulator

Exempt accommodation is often used as a means of housing those with very few other housing options, such as prison leavers, rough sleepers, refugees and migrants, and those experiencing substance misuse issues.

Because such landlords provide loosely defined care and support services, their tenants can be exempt from housing benefit caps and associations can charge much higher rents than regular landlords.

In many cases, registered providers employ managing agents to provide the accommodation and support services by entering into short-term lease arrangements with these companies. Often these managing agents can themselves lease properties from individual homeowners.

Writing in the judgement today, the RSH said that this model meant Reliance delegated significant responsibilities to a large number of these agents and that this presented a material risk to Reliance as well as not satisfying the regulator that there were sufficient controls in place to ensure third parties are meeting agreements.

The note also said that the regulator does not have assurance that there are systems in place to ensure that the managing agents are providing services to required levels of support to meet agreements surrounding housing benefit.

The regulator raised concerns about the payments to third parties, stating that it did not feel Reliance had sufficient oversight of these payments and did not adequately monitor whether the services being paid for were being provided to tenants.

It added: “Taking into account all the evidence received it is the regulator’s assessment that Reliance is failing to manage its affairs with an appropriate degree of skill, independence, diligence, effectiveness, prudence and foresight.”

In response to the regulator’s note, Reliance said: “The team at Reliance Social Housing is disappointed with the Regulator of Social Housing’s findings, following several months of engagement.

“The breach in [the governance and financial viability standard] is primarily the result of the regulator’s findings on Reliance’s oversight of managing agents.

“We will be reviewing our working relationship with managing agents and adopting further processes to mitigate the highlighted risks, as set out in the judgement.

“We will also be appointing a dedicated team – immediately – who will liaise and work with the regulator to address the issues raised.

“Reliance is determined to protect and expand its ‘social housing’ portfolio and will endeavour to take all necessary steps to satisfy the regulator of any concerns around the ‘exempt sector’.

“Exempt accommodation is a crucial service, providing quality services for those in need – we will be taking action and adapting our processes to ensure that this continues in the most effective manner possible.”

In a separate notice published this morning, the regulator found 3CHA non-compliant with both the governance and financial viability standards.

According to the regulator, 3CHA provides more than 700 units of supported housing, however it reports them as general needs housing in its regulatory returns.

Similarly to Reliance, 3CHA operates a model that sees it enter into short-term leasing arrangements with third-party managing agents that deliver landlord and management services on 3CHA’s behalf.

Again, this model means that 3CHA “transfers a very significant amount of the rent and service charge income it receives to third parties on an ongoing basis”.

The regulator said it “does not have assurance that 3CHA has effective systems in place to give it sufficient oversight of these payments”, adding that it was its judgement that “3CHA does not adequately reconcile the payments made to third parties with evidence that the services are being provided to its tenants”.

As with Reliance, the regulator said it has “not received sufficient assurance that the arrangements entered into by 3CHA are not inappropriately advancing the interests of third parties or that taxpayers’ interests are being safeguarded”.

It added that a “lack of effective board oversight in these areas” was a “fundamental failure” and that 3CHA’s stress-testing “does not consider the range of scenarios 3CHA might face or have appropriate mitigation strategies in place as a result”.

Meanwhile, 3CHA has provided the regulator with “conflicting information” with regards to the classification of its stock and the rent it is charging.

“The lack of assurance over 3CHA’s ability to charge rents at the current level, alongside the weak oversight of payments made to third parties and inadequate stress-testing, means that the regulator does not have assurance that 3CHA’s long-term financial forecasts are based on appropriate and reasonable assumptions and consequently how it can evidence long-term viability,” the regulator concluded.

A spokesperson for 3CHA said: “We note the view expressed by the RSH and we will continue, as we have always done, to work diligently to the point where they deem us to be compliant.”

Due to both landlords having fewer than 1,000 units of social housing, Reliance and 3CHA are both regarded as small providers. This means that they are out of the scope of in-depth assessments and gradings and instead receive these notes when found not to meet standards.