In the fourth part of our series on contract management pitfalls, we look at the risks arising out of varying the terms of construction contracts.
These regulations are part of a suite of measures introduced over the last 12 months to reverse the Office of National Statistics’ decision to reclassify housing associations as ‘public non-financial corporations’.
The Regulations largely reflect what was anticipated (see detail below), but also go further in removing all rights for local authorities in their capacity as company members or shareholders of private registered providers (“PRPs”). Key to note is also that they will override any contractual arrangements to which a PRP is party, in so far as these are inconsistent with the Regulations, and they will apply irrespective of any inconsistency between the Regulations and the PRP’s constitution.
The Regulations are awaiting formal approval by Parliament, and they will take effect six months after the day that the Regulations come into effect (the “appointed day”). It is anticipated that this will be around the end of March 2018, in line with the end of the financial year, but no definitive timetable is in place.
Key provisions are as follows:
- Local authority officers cannot exceed 24% of the total number of board members.
Any attempts to subsequently exceed 24% (by way of appointment etc.) will be invalid.
A PRP must remove a sufficient number of local authority board members to meet this requirement; if the local authority does not inform the PRP which board members it would like to remove, the rest of the board can select who to remove by way of majority vote.
- The presence of local authority officers is no longer required to achieve quorum at board meetings.
Any provision within a PRP's constitution requiring the presence of a local authority Board Member for a Board meeting to be quorate will no longer have effect.
- No more local authority voting rights as members.
A local authority that is a company member or shareholder will cease to hold or exercise any local authority voting rights in that capacity.
The Regulations require the PRP to amend its constitution to re-assign the votes pro-rata among the remaining voting membership. If the PRP does not amend its constitution, then the voting rights will be deemed to be re-assigned in this way.
Please note that this provision only applies to PRPs where the local authority itself is a member/shareholder; it does not affect the voting rights of local authority nominees/appointees who are individual members/shareholders. Any voting rights offered to such a class of shareholder will not, therefore, be affected by these Regulations.
- Votes of the board other than by way of a majority will only require a 75% majority vote in favour.
If a PRP has local authority officers on the board, then any provision within its constitution that requires a board resolution be approved other than by a majority of the Board (i.e. unanimous decisions) will be amended to require approval by at least 75% of the votes cast (or a lower percentage if specified in the constitution.)
- Any requirement for local authority consent to constitutional changes will cease to have effect.
There is a slight lack of clarity here – the Regulations state this is only where such a requirement is within the constitution itself. There may, however, be provisions within a PRP’s transfer agreement and it is unclear how to interpret these where the changes relate to issues unconnected to the subject matter of the Regulations (for example, changes to objects requiring consent under the transfer agreement). The Regulations do state that they apply notwithstanding anything in contractual arrangements, and therefore it could be assumed that this will also apply to any requirement to obtain consent to constitutional changes within a transfer agreement.
- The Regulations do not apply to arm’s-length management organisations
Nothing in the Regulations apply to non-profit PRPs which are wholly owned by local authorities.
The Regulations are not yet in a final form, and we will, therefore, issue updates as and when any changes arise; in particular, we will be liaising with the NHF and DCLG regarding our comments on the Regulations.
In the meantime, we understand that many of our clients will be keen to discuss the Regulations with their local authorities and we are happy to advise on the best approach to this in light of your constitutional arrangements. We also offer fixed-fee packages to amend your constitution to reflect the new Regulations.
For further information
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