Decision

Regulatory Notice: Pivotal Housing Association (18 March 2021)

Updated 18 March 2021

Applies to England

RSH Regulatory Notice

• Provider: Pivotal Housing Association
• Regulatory code: 4747
• 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) Pivotal Housing Association (Pivotal) is non-compliant with the Governance and Financial Viability Standard. It has failed to ensure that its governance arrangements have been effective and that it has been able to manage its resources effectively to ensure viability is maintained.

b) Pivotal has not been able to demonstrate that it has managed its affairs with an appropriate degree of skill, independence, diligence, effectiveness, prudence and foresight. It has failed to demonstrate that its business planning, risk management and internal controls framework have been effective in identifying and managing risk to the delivery of its objectives.

c) Pivotal 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 Temporary Social Housing (TSH) or 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 Pivotal is compliant with both the governance and financial viability elements of the Governance and Financial Viability Standard and also with the Rent Standard.

Pivotal’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. Pivotal uses the home to provide both TSH and SSH. Pivotal’s lease arrangements with its head landlords vary in terms, are for periods of up to 20 years and are index linked. Where it provides SSH, Pivotal provides housing management. Care and support is provided by third-parties.

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. Pivotal has entered into a series of lease arrangements without demonstrating that it fully understands the associated risks. It has entered into long-term leases, with limited flexibility should risks crystallise. In more than half of the properties for which it has entered into long-term leases it only has short tenancy agreements and void arrangements are not always in place with the care and support providers. This means that Pivotal is exposed to long-term liabilities, without certainty over its income in the long-term.

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

Pivotal is currently reliant on financial support from a third-party, which provides a range of services to the registered provider. The chief executive and director of operations work for both Pivotal and the third-party. Its plans to become financially viable without the support of this third party are predicated on future growth. Pivotal 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. Pivotal has continued to enter into new leases without fully understanding the risks connected with its current portfolio. For these reasons, we have concluded that Pivotal 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. Pivotal has agreed a business plan but has only carried out limited stress-testing of the plan. Pivotal has developed a risk and control framework although this has not been effective in identifying and mitigating the long-term risks connected with the business model and the risks associated with compliance with the Rent Standard.

The regulator has also concluded that Pivotal is not compliant with the Rent Standard. As noted above, Pivotal has confirmed to the regulator that it cannot be assured that all of its properties meet either the TSH or SSH exemptions it is claiming. It is therefore unable to confirm that it is meeting the Rent Standard and the associated rent-setting guidance for all of its stock.

It is a serious matter if an exception from rent requirements is inappropriately applied. Rents and service charges for Pivotal’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.

Pivotal has taken steps to improve its governance and is committed to working with the regulator to address the issues outlined in this Regulatory Notice. The regulator will continue to engage with Pivotal as it addresses these matters and seeks to come back into a position of compliance.

Based on the most recent Statistical Data Return (SDR), Pivotal 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

Pivotal was registered with the regulator in 2013 and is also a registered charity.

The SDR for March 2020 stated Pivotal managed 435 units of social housing across five 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.