Decision

Regulatory Notice: Hilldale Housing Association Limited (18 March 2021)

Updated 18 March 2021

Applies to England

RSH Regulatory Notice

• Provider: Hilldale Housing Association Limited
• Regulatory code: 4760
• Publication date: 18 March 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) Hilldale Housing Association Limited (Hilldale) is non-compliant with the Governance and Financial Viability Standard. It has failed to ensure that it has effective governance arrangements in place to deliver its aims, objectives and intended outcomes for tenants in an effective, transparent and accountable manner.

b) Hilldale has failed to demonstrate that it has an effective business planning, risk management and internal controls framework in place that identifies and manages risk to the delivery of its objectives.

c) Hilldale has not demonstrated that it is managing its resources effectively to ensure its viability is maintained, and that social housing assets are not being put at risk.

d) Hilldale is not compliant with the Rent Standard. It is unable to provide adequate assurance that the accommodation it provides meets the government’s definition of Specialised Supported Housing (SSH) and therefore that it is exempt from the Rent Standard.

The Regulator’s Findings

The regulator has concluded that it lacks assurance and evidence that Hilldale is compliant with both the governance and viability elements of the Governance and Financial Viability Standard and also with the Rent Standard.

Hilldale’s main operation involves entering into long-term lease arrangements with the private sector to acquire homes which are then used to provide accommodation to vulnerable tenants. Hilldale’s lease arrangements with its head landlords vary in terms, are for periods of up to 50 years and are index linked. Hilldale enters into separate contracting arrangements with third-parties which provide care and support for Hilldale’s tenants, for terms of between five and 35 years

The Governance and Financial Viability Standard requires registered providers to manage their resources effectively to ensure viability is maintained and social housing assets are not at risk. Hilldale has entered into a series of lease arrangements without demonstrating that it fully understands the associated risks. It has entered into long-term leases, without break clauses, and there is a significant mismatch between the lease terms, and the length of contracts with care providers, leaving Hilldale exposed to long-term liabilities, without certainty over its income in the long-term.

To deliver its medium to long-term viability, Hilldale assumes its material income source (rent) is ‘excepted’ from the requirements of the Rent Standard by meeting SSH criteria. Hilldale’s board cannot provide assurance that all of its accommodation is SSH and therefore cannot demonstrate that the rental assumptions underpinning its financial plans are accurate.

Hilldale is currently reliant on financial support from its unregistered parent. Its plans to become financially viable without the support of its parent are based on reducing void rates, increasing income collection, improved efficiencies and future growth. Hilldale has not been able to provide assurance that it has adequate mitigations and controls to protect social housing assets and tenants for its current property portfolio, and its planned growth will layer additional risks on to the business. Hilldale continues to enter into new leases without fully understanding the risks to its current portfolio. For these reasons, we have concluded that Hilldale is non-compliant with part 1.2 of the Governance and Financial Viability Standard.

The Governance and Financial Viability Standard requires providers to have an appropriate, robust and prudent business planning, risk and control framework. Hilldale’s most recent business plan is under-developed. While some financial modelling has recently been completed, there has been no stress testing against the business plan. Hilldale also does not have a risk and control framework in place. While a risk register has recently been created, this does not fully reflect the risks the organisation currently faces and does not demonstrate that Hilldale can manage the risks of operating its current business model.

Hilldale’s lack of effective risk management and internal controls meant that it had failed to carry out a number of statutory health and safety checks. Hilldale also failed to notify the regulator of this matter. Hilldale has now taken action to put things right and has completed the majority of statutory checks and safety actions, providing assurance that tenants are not at risk. Nevertheless, this was a significant failure by Hilldale to manage this key risk and was also a breach of part 2.3 of the Governance and Financial Viability Standard to communicate potential non-compliance to the regulator in a timely manner.

The Governance and Financial Viability Standard requires providers to have effective governance arrangements that deliver their aims, objectives and intended outcomes for tenants in an effective, transparent and accountable manner. Our assessment is that Hilldale’s governance framework is weak. Until April 2020 it had only one director. In September 2020 it appointed a new board and an independent Chair. Hilldale has not assessed itself against its chosen code of governance and has not assessed against the regulatory standards, and therefore the board does not have assurance of compliance.

Due to significant weaknesses in its governance arrangements, Hilldale has failed to manage potential conflicts of interest arising as a result of transactions between Hilldale and companies connected with its former director. Following the appointment of the new board, it has taken action to review the commercial arrangements and recover monies owed to Hilldale. The weaknesses in these arrangements also meant that Hilldale failed to adequately consider the requirements of part 2.6 of the Governance and Financial Viability Standard about ensuring arrangements do not inappropriately advance the interests of third parties, and the organisation’s not-for-profit status, when entering into an agreement and financial arrangements for a third-party to acquire the membership of the provider.

The regulator has also concluded that Hilldale is not compliant with the Rent Standard. During engagement with the regulator, Hilldale’s board has concluded that due to a lack of information about the leases it has entered into, it cannot evidence the basis upon which it has applied the SSH exception to its stock. It is therefore unable to confirm that it is meeting the Rent Standard and the associated rent-setting guidance.

It is a serious matter if an exception from rent requirements is inappropriately applied. Rents and service charges for the majority of Hilldale’s tenants may have been, and may continue to be, overcharged. As some of the cost of these rents has been met through Housing Benefit and Universal Credit, there may also be implications for the public purse.

Following the appointment of a new board, Hilldale has started to improve its governance; it is the in the process of agreeing a new business plan and risk and control framework and has committed to working with the regulator to address the issues outlined in this Regulatory Notice. The regulator will continue to engage with Hilldale as it addresses these matters and seeks to come back into a position of compliance. Hilldale has also commissioned external support for an improvement plan through which it intends to address the regulator’s concerns.

Based on the most recent Statistical Data Return (SDR), Hilldale had fewer than 1,000 homes and is 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.

About the provider

Hilldale was registered in 2013 and is designated as a non-profit provider. In November 2020 Hilldale became a subsidiary of Change Housing, an unregistered group parent.

The SDR for March 2020 stated Hilldale managed 808 units of social housing across 39 local authorities.

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.