Tougher Stance on Lease Based Providers - A Decisive Moment for the Supported Housing Sector?

In a rare but significant move for the social housing sector, the Regulator of Social Housing (the Regulator) has issued an enforcement notice to a lease-based provider of specialised supported housing. This action underscores the Regulator’s commitment to upholding the regulatory standards and protecting tenants’ interests as well as its increased scrutiny of lease based supported housing providers. 

Background

The Provider has been under scrutiny since 2021 when the Regulator found it non-compliant with the Governance and Financial Viability Standard and Rent Standard. Despite ongoing engagement, the Regulator has deemed that the Provider has failed to address these significant issues, including inadequate liquidity and serious risk to its viability.

The enforcement notice mandates the Provider to commission an independent review and develop a clear action plan to rectify these issues. 

The Immediate Context

This action is striking in its timing as it follows hot on the heels of other developments for the Supported Housing Sector, including:

• The Government’s consultation on the Support Housing (Regulatory Oversight) Act 2023.

The consultation is seeking views on introducing: a licencing regime for supported housing providers; National Supported Housing Standards; a new planning use class for supported housing; a definition of care, support and supervision in Housing Benefit regulations; and a proposal to link Housing Benefit with standards and licensing.

• The Regulator’s focus report on “Lease-based provision of Specialised Supported Housing”

The report paints a stark picture of the risk, instability and persistent failure by some providers to deliver quality support for residents with complex needs as well as value for money. 

Patterns Emerging?

The is enforcement action is not an isolated incident and we have recently seen other lease based supported housing providers either downgraded or receiving regulatory notices for similar failures including – unsustainable growth, weak governance and limited oversight of managing agents. 

The focus report published earlier this month crystallises these concerns, with key points being:

• Concentration of risk: reliance on long term, low margin, inflation linked leases increases financial vulnerability. Often the lease provisions mean the RP is taking on a greater share of the risk than the freeholder;
• Thin capitalisation: some providers operate with minimal capital reserves, limiting their ability to absorb financial shocks;
• Poor risk management: inadequate contingency planning and risk assessment practices comprise providers’ resilience;
• Inappropriate governance arrangements: weak governance structures leading to ineffective decision-making and oversight;
• Rent assurance: a lack of assurance that appropriate rents (with the correct exemptions) are being charged raises concerns about value for money and compliance with the Rent Standard.

Key Takeaways

The key takeaways for providers are:

1. Financial resilience is crucial: providers must ensure robust financial management and sufficient liquidity to meet their obligations and deliver a good quality service to residents and service users. If your income is underpinned by long term lease obligations, ensure your board fully understands the risks and that you have robust financial forecasts, contingency planning and working capital reserves.
2. Engagement with the Regulator: proactive and transparent engagement with the Regulator is essential. Ignoring or inadequately dealing with regulatory concerns can lead to further enforcement actions with serious consequences.
3. Preparation for New Regulations: with the proposed licencing regime and standards, providers should assess their readiness and participate in the consultation process before it closes on 15 May 2025.
4. Governance and Risk Management: strong governance structures and risk management practices are vital to navigate the evolving regulatory landscape. Boards should have assurance on compliance including assurance of compliance with the Rent Standard and that the adopted business model allows for financial viability. Boards must also have the independence and skills to challenge and steer the organisation.
5. Get involved in the consultation: the reforms being proposed will reshape the operating landscape for supported housing providers. It is important to engage with the consultation to ensure the framework is proportionate and deliverable.

We will be hosting a webinar on the Supported Housing Regulation Consultation on 30 April 2025. Click here to sign up. 

You can also click here to participate in the consultation on the Supported Housing (Regulatory Oversight) Act 2023.