The Social Housing Regulator in England (HCA) has published guidance and a Direction about the new notifications regime, taking effect from 6th April 2017.
The notifications regime for disposal of social housing dwellings and of disposal of land that is not a dwelling will replace the existing consents’ regime.
The new Direction will come into effect from 6 April 2017 following amendments to the Housing and Regeneration Act (HRA) 2008. It is hoped that the removal of the regulator’s controls over providers will encourage the Office for National Statistics to re-classify the sector as ‘private’.
Despite the abolition of the regulator’s consents’ regime, the regulatory and legal requirements on Registered Providers (RP) still apply. The regulator still expects RPs to:
- Protect social housing from undue risk;
- Adhere to all relevant law and comply with governing documents;
- Consult with tenants if a disposal would mean a change in the tenant’s landlord or affect the tenant’s statutory or contractual rights; and
- Achieve value for money in how social housing is used.
Although the statutory requirement in the HRA 2008 to notify the regulator applies to all types of disposal of a social housing dwelling and land that is not a dwelling, the regulator does not need to be notified of a disposal of any land that is not a dwelling and only requires notification of disposal of social housing dwellings in certain circumstances, known as Relevant Disposals.
The regulator has set out three types of Relevant Disposals and they consist of 8 categories:
Landlord Disposals (categories 1-5) – where a provider disposes of the dwelling and will not be the landlord of the current residential occupier or any future residential occupier
Finance Disposals (categories 6 and 7) – where the purpose of the disposal by a provider of any interest in a dwelling is to obtain finance
Guarantee Disposals (category 8) – where the purpose of the disposal by a provider of any interest in a dwelling, is to provide or support a guarantee or other obligation.
The regulator is predominantly interested in disposals where the landlord ceases to be the landlord.
The five categories are listed below:
Category 1 – Out of sector – Where the dwelling, whether occupied at the time of disposal or not is disposed to a purchaser that is not a provider (unless the residential occupier or shared owner).
Category 2 – Within sector – Where the dwelling is disposed to another provider and it is occupied at the point of disposal (i.e. stock transfers/exchanges).
Category 3 – Last social housing – Where the dwelling disposed is (or includes) the provider’s last social housing dwelling. This would necessarily cause the regulator to review an RPs regulated status.
Category 4 – To a profit making provider – Where the dwelling is disposed to a profit making provider whether the dwelling(s) are occupied or unoccupied.
Category 5 – More than 5% of stock – Small providers only (with fewer than 1,000 units) must notify the regulator if they have disposed of 5% or more of their social housing dwellings in a single transaction.
What information must be provided?
- Identification of the dwellings – the location of the property, i.e. the address (for multiple properties the records can be grouped).
- Type or use of the dwelling – general needs, supported housing or shared ownership etc.
- Type of disposal – information about the proceeds – whether the disposals have achieved full market value (outside the sector) or existing use value for social housing (EUV-SH)(within the sector) and whether the proceeds have been received at the point of disposal or receipt is deferred.
- Identity of recipient – the name of the purchaser if another RP or if an associate, subsidiary or parent of the original RP. Otherswise this is only the category of purchaser.
The HCA will monitor how social housing is used to support debt and the extent of indebtedness a provider has taken on. Finance Disposals include the disposal of any interest (whether dwellings are occupied or not).
Notification requirements for Finance Disposals differ for small and large providers. That is because the regulator already receives detailed and regular information from large providers about standard private finance, and it does not receive this from small providers.
The two categories are:
Category 6 – small providers disposing of social housing dwellings in any way to raise any type of finance (standard and non-standard) are required to notify the regulator of the disposal. Standard types of finance include the grant of a fixed legal charge to a provider of finance (which includes standard bank funding, ISDAs, bond and loan notes issuers) and are for e.g. bonds or bank funding and non-standard forms include for example sale or lease and leaseback arrangements.
Category 7 – large providers need only notify the regulator when they have disposed of dwellings to obtain non-standard types of finance, for example finance achieved through sale and leaseback or lease and leaseback arrangements or other new and novel arrangements. Charges in favour of pension funds are likely to fall within this category. Whilst it would seem clear using a security trustee arrangement would be “standard finance” – and not require notification – the wording of the Direction itself is not clear cut.
What information must be provided?
Only the number of dwellings disposed of needs to be specified; full details of all non-standard forms of finance must be provided along with the value of finance, hedging and identity of the finance provider.
This is only one category, category 8 – it includes granting of a security interest in a social housing dwelling to a third party to guarantee the performance of an associated company or guarantee a debt or obligation of the provider (but not any disposal relating to financing arrangements or grants from public bodies).
What information must be provided?
Information in the same terms as for Finance Disposals should be provided.
When to notify the regulator of any of the relevant disposals?
Most Relevant Disposals need only be notified to HCA on a quarterly basis, within 3 weeks after the end of the relevant quarter. The quarters are: end of June, September, December and March.
There are some Priority Notifications where the regulator needs to be notified within 3 weeks following the disposal.
- disposals of dwellings (out of sector) where the landlord of the existing resident (the residential occupier) has changed
- disposal which is or includes the provider’s last social housing dwelling;
- disposals made by small providers where a single disposal transaction involves 5% or more of the provider’s total social housing stock; and
- disposals made by small providers to secure private finance.
How to notify the regulator?
As part of the guidance, the regulator has set out a form for providers to complete, and submit all the required information with regards to disposals, which can be done via the regulator’s data collection system known as NROSH+.
Notwithstanding the removal of the s.172 consent requirements, there may be further requirements on disposals to consider including:
- Non-exempt charities – providers which are “non-exempt” charities will now have to comply with the Charities Act 2011 or obtain consent from the Charity Commission prior to completing any disposal. This was previously not required as obtaining s.172 Consent covered this;
- Grant – disposal may trigger repayment or may require consent to be given prior to disposal;
- Use restrictions – dwellings may be restricted to affordable use for example by s.106 agreements, binding nomination agreements or restrictive covenants;
- Loan covenants – still need to be complied with and query whether lenders could introduce a system of “shadow regulation” via their loan documents; and
- Secure tenancies – there are statutory prohibitions on disposing of interest in properties with secured tenants other than to another non-profit provider.
Notifying the regulator about restructuring and amending governing documents
There are other legislative changes coming into force on 6 April 2017 in relation to notifying the regulator when making constitutional changes (including restructuring) and we will issue a separate briefing on this.