Providers need to be alive to the risk of contractors becoming insolvent and how to limit the resulting inevitable disruption.
The Regulation of Registered Social Landlords (Wales) Act 2018 (the Act) received Royal Assent on 13 June 2018 and has/will come into force in stages.
The Act is designed to reverse the decision of the Office for National Statistics (ONS) to reclassify RSLs as public non-financial corporations and may have a significant impact on the future shape of the social housing sector within Wales.
Key points within the Act
The key provisions of the Act will come into force on 15 August 2018.
There will no longer be a requirement for RSLs to obtain consent from the Welsh Ministers to changes to Articles/Rules – this is replaced by a requirement to notify the Welsh Ministers of changes, including changes to name and registered office. We anticipate that further guidance on the form and timing of such notifications will be published imminently by the Welsh Government.
Mergers, amalgamations, transfers of engagements and winding up
Similarly, consent will not be required for structural changes, including conversions of RSLs which are companies to become community benefit societies, and mergers, transfers of engagements and amalgamations.
However, for amalgamations and transfer of engagements, there will be a requirement to provide evidence of the tenant consultation carried out when submitting a notification.
We anticipate that (like the system now adopted in England) the Welsh Ministers will require notification prior to registration of transfers of engagements etc, and will expect early engagement with regulatory leads even where consent is not required.
We wait to see if the Welsh Ministers will also relax their approach regarding consent to be obtained before an RSL can establish a subsidiary, although we anticipate that this will be the case.
RSLs will no longer need to obtain consent from the Welsh Ministers to dispose of (or charge) assets (including tenanted properties), pursuant to section 9 of the Housing Act 1996, section 171D of the Housing Act 1985 and sections 81 and 133 of the Housing Act 1988. This could open up a wealth of opportunities for RSLs looking to actively manage their assets and/or considering whether it would be possible to move assets out of the regulated sector.
Notification will be required in place of consent and further guidance is likely to be published setting out the Welsh Ministers’ expectations in respect of such notification. We anticipate that although consent would not be required to dispose of tenanted stock (including out of the sector), this would attract significant regulatory scrutiny.
More limited regulatory intervention powers
The Act restricts a number of the Welsh Ministers’ intervention and enforcement powers, including their ability to remove and appoint officers of RSLs, to require transfers of RSLs’ management functions and land and to issue penalties, to situations where there has been a breach of a legal requirement by the RSL, rather than just where the RSL has failed to properly manage its affairs.
Abolition of Disposal Proceeds Fund (DPF)
The Act will abolish the requirement for RSLs to maintain, and comply with rules relating to, a DPF. After 15 August 2018, RSLs will not be required to account for DPF proceeds, and thereafter the rules relating to DPFs will cease to have effect either when an RSL’s DPF proceeds have been exhausted, or the RSL cannot use its DPF proceeds in accordance with an agreed determination, or, at the latest, 15 August 2021.
Goodbye Golden Share
The Act will introduce limitations on the ability of local authorities to nominate or appoint to RSLs’ boards of management, and local authorities will also cease to have voting rights as members/shareholders of RSLs. Any right of veto by a local authority to changes to RSLs’ constitutions, or provisions which contradict the requirements of the Act, will be overridden by the Act. The Act will therefore override any requirements in stock transfer agreements to obtain consent to changes to RSLs’ constitutions.
The Act introduces a maximum limit on the number of local authority appointees to an RSL’s board of 24% - no appointments may be made after 15 August which would cause this limit to be exceeded, and a staggered time limit will be introduced in relation to removing local authority appointees from boards after 15 August. The maximum 24% limit will need to be adhered to by no later than 15 December (4 months after the relevant provision is implemented), but local authority appointees cannot begin to be removed by RSLs until 15 October (2 months after the relevant provision is implemented) unless the relevant local authority agrees to this. The local authority may also specify who they wish to be removed.
The Act also overrides any requirement within an RSL’s constitution which:
- Requires a local authority appointee to be present in order for a meeting to be quorate; or
- Requires a majority of more than 75% of board members to vote in favour of a resolution in order for it to be passed (thereby ensuring that local authority appointees would not be able to block board resolutions after the implementation of the 24% limit).
The Welsh Ministers may disapply the requirements of the Act (in respect of local authority board and membership rights) to RSLs wholly owned by local authorities.
The new freedoms under the Act will undoubtedly open up exciting opportunities for RSLs wishing to:
- explore merger or group consolidation opportunities, but who have been unable to do so to date, for example, because of a reluctant local authority;
- consider whether more active asset management would be appropriate, for example in relation to properties which are more expensive to maintain; and
- investigate whether more locally tailored flexible rent and tenure models could be offered to tenants through transferring assets out of RSLs into non-regulated subsidiary vehicles.
We have seen a number of housing associations in England capitalising on such opportunities since deregulatory measures were implemented in April 2017. However, boards of RSLs will want to ensure that any such proposals ensure that tenants’ interests and rights are protected, and that they continue to meet their other regulatory obligations.
You may also wish to consider amending your constitution, particularly where you have weighted voting rights at member/shareholder level, to ensure clarity over the impact of the Act’s provisions around board and membership voting.
For more information
For further information relating to the Regulation of Registered Social Landlords (Wales) Act 2018, or for a conversation on potential opportunities for your organisation, please get in touch with Gemma Bell.
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