Decision

Regulatory Notice: 3CHA Ltd (18 October 2021)

Updated 18 October 2021

Applies to England

RSH Regulatory Notice

• Provider: 3CHA Ltd
• Regulatory code: 4758
• Publication date: 18 October 2021
• Governance grade: N/A
• Viability grade: N/A
• Reason for publication: Economic Standards
• Regulatory route: Reactive Engagement

Other providers included in the judgement

None

Regulatory Finding

The regulator has concluded that:

a) 3CHA Ltd (3CHA) is non-compliant with the Governance and Financial Viability Standard. It has failed to ensure that it has effective governance arrangements in place that deliver its aims, objectives and intended outcomes for tenants in an effective, transparent and accountable manner.

b) 3CHA has failed to demonstrate that it has an appropriate, robust and prudent risk and control framework in place. It has also not been able to demonstrate that it is managing its affairs with an appropriate degree of skill, independence, diligence, effectiveness, prudence and foresight.

c) 3CHA has failed to ensure that any arrangements it enters into do not inappropriately advance the interests of third parties or are arrangements which the regulator could reasonably assume were for such purposes.

d) 3CHA has failed to demonstrate that it is managing its resources effectively to ensure its viability is maintained while ensuring that social housing assets are not put at undue risk. It has also failed to evidence that its financial forecasts are based on appropriate and reasonable assumptions.

e) 3CHA has been unable to demonstrate that it complies with the Rent Standard.

The Regulator’s Findings

The regulator has concluded that it lacks assurance and evidence that 3CHA is compliant with the Governance and Financial Viability Standard.

3CHA provides more than 700 units of supported housing although it reports them as general needs on its regulatory returns. 3CHA’s primary operating model means it enters into short-term leasing arrangements for properties with third party managing agents. 3CHA has landlord responsibility for the tenants of those properties while the managing agents deliver the landlord and management services on 3CHA’s behalf under an agreement.

The model operated by 3CHA means that it delegates significant responsibilities to third parties including the selection and sign up of new tenants. These delegations create material risks to 3CHA and the regulator does not have assurance that sufficient controls are in place to mitigate the risk of third parties not acting in accordance with the agreements in place.

The model means 3CHA transfers a very significant amount of the rent and service charge income it receives to third parties on an ongoing basis. The regulator does not have assurance that 3CHA has effective systems in place to give it sufficient oversight of these payments. It is the regulator’s judgement that 3CHA does not adequately reconcile the payments made to third parties with evidence that the services are being provided to its tenants.

The Governance and Financial Viability Standard requires registered providers to ensure that any arrangements they enter into do not inappropriately advance the interests of third parties or are arrangements which the regulator could reasonably assume were for such purposes. There is also a requirement that governance arrangements shall safeguard taxpayers’ interests and the reputation of the sector. The evidence received from 3CHA demonstrates a weak contracting environment and inadequate monitoring and oversight of very significant sums of money which are transferred to third parties on an ongoing basis. As a result, there is a risk that third party managing agents do not provide the services being claimed, or that services and housing management practices are inappropriate. The regulator 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.

A lack of effective board oversight in these areas is a fundamental failure of governance and operational control, and so we conclude that 3CHA is failing to manage its affairs with an appropriate degree of skill, independence, diligence, effectiveness, prudence and foresight.

3CHA’s stress testing does not meet the requirements of the Governance and Financial Viability Standard. The testing does not consider the range of scenarios 3CHA might face or have appropriate mitigation strategies in place as a result. 3CHA has not been able to demonstrate that it assesses, manages and where appropriate addresses risks to ensure the long term viability, including ensuring that social housing assets are protected.

3CHA has provided the regulator with conflicting information in relation to the classification of its stock and the rent it is charging. We lack assurance on how the board of 3CHA has satisfied itself that it is meeting the required outcomes of the Rent Standard and the associated rent-setting requirements.

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.

Based on the most recent Statistical Data Return (SDR), 3CHA had fewer than 1,000 units of social housing and is therefore classed as a small provider. The regulator does not publish regulatory judgements for providers which fall into this category. Instead, in the interests of transparency, the regulator publishes a Regulatory Notice where it has evidence that a small registered provider is not meeting the regulatory standards. This Notice is published under those arrangements.

Section 220 of the Housing and Regeneration Act 2008 states that the regulator’s regulatory and enforcement powers may be used if a registered provider has failed to meet a standard under section 194 of the Act. The regulator is considering what further action should be taken, including whether to exercise any of its powers.

About the provider

3CHA was registered in 2013 and is designated as a not-for-profit provider. 3CHA is a private company limited by guarantee without share capital.

In its 2021 SDR, 3CHA reported that it provided 742 units of general needs social housing and 3 units of intermediate rent social housing.

About our Regulatory Notices

Regulatory notices are issued in response to an event of regulatory importance (for example, a finding of a breach of the Rent Standard or of a consumer standard that has or may cause serious harm) that, in accordance with its obligation to be transparent, the regulator wishes to make public. More detail about Regulatory notices is set out in ‘Regulating the Standards.’

Key to Grades

Governance:

• G1 (Compliant): The provider meets our governance requirements
• G2 (Compliant): The provider meets our governance requirements but needs to improve some aspects of its governance arrangements to support continued compliance
• G3 (Non-compliant): The provider does not meet our governance requirements. There are issues of serious regulatory concern and in agreement with us the provider is working to improve its position.
• G4 (Non-compliant): The provider does not meet our governance requirements. There are issues of serious regulatory concern and the provider is subject to regulatory intervention or enforcement action.

Viability:

• V1 (Compliant): The provider meets our viability requirements and has the financial capacity to deal with a wide range of adverse scenarios.
• V2 (Compliant): The provider meets our viability requirements. It has the financial capacity to deal with a reasonable range of adverse scenarios but needs to manage material risks to ensure continued compliance.
• V3 (Non-compliant): The provider does not meet our viability requirements. There are issues of serious regulatory concern and, in agreement with us, the provider is working to improve its position.
• V4 (Non-compliant): The provider does not meet our viability requirements. There are issues of serious regulatory concern and the provider is subject to regulatory intervention or enforcement action.