Removal of Local Authority Golden Shares

Since deregulation was announced and enabled in Section 93 of the Housing and Planning Bill, we’ve been eagerly anticipating sight of the promised draft regulations.

To recap, the commercial intention behind these measures is to enable the Office for National Statistics to remove the current classification of housing associations as “public bodies”.

The wait is now finally over and the headlines are:

(a) They won’t apply to not-for-profit RPs which are wholly controlled by a local authority (such as ALMOs) – this is narrower in its application than the Section 93 power permits (which is undoubtedly a good thing from the perspective of keeping options open for new delivery vehicles in the sector) – but their application is wider, perhaps, than some of us expected – for example for-profit RPs will be caught;
(b) Ideally, the local authorities and RPs to which the regulations apply will have six months to agree compliant constitutional and contractual arrangements. This represents a real opportunity to renew terms of engagement and future relationships on a positive and active basis.
(c) For those who can’t reach agreement, after those six months are up:

  • There will be a limit on the number of board members that the local authority can appoint to the RP’s board – this is capped at no more than 24% of the board membership; if at any time this cap is breached, the appointment of any “local authority officer” will not be effective.
  • Quorum provisions which require a board member appointed by the local authority to be present will not be effective.
  • The local authority will not be able to exercise voting rights in its capacity as a shareholder or member of the RP; any constitution that includes voting rights for the local authority after 6 months will be deemed to have been assigned, pro rata, amongst the other shareholders / members.

What should local authorities and RPs do if they are affected?

(a) Commence a review of the terms of the LSVT documentation and the RP’s constitution to determine provisions that are incompatible with the regulations and agree revised terms; note that we are expecting the regulations to be implemented fairly swiftly, perhaps by the end of this calendar year.
(b) Consider whether the local authority should remain a shareholder /member (given the removal of voting rights) and /or whether the other rights enjoyed by shareholders / members should be retained under contract – although we anticipate that anti-avoidance measures could be introduced to counter measures like these which seek to continue the current status quo.
(c) Consider whether there are other aspects of the LSVT documentation that could benefit from being revised or refreshed at this juncture and /or whether their relationship would benefit from a compact or partnering agreement; and
(d) For RPs:

  • check whether making changes to the constitution / LSVT documentation requires lender consent;
  • consider, when looking to agree revisions to your constitution with the local authority, the terms of your chosen Code of Governance.

If you would like to discuss the draft regulations and their implications, please contact either Andrew Cowan or Gareth Hall.

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