Inclusion Housing Community Interest Company v Regulator of Social Housing
| Jurisdiction | England & Wales |
| Judge | Mr Justice Chamberlain |
| Judgment Date | 24 February 2020 |
| Neutral Citation | [2020] EWHC 346 (Admin) |
| Court | Queen's Bench Division (Administrative Court) |
| Docket Number | Case No: CO/1865/2019 |
| Date | 24 February 2020 |
[2020] EWHC 346 (Admin)
Mr Justice Chamberlain
Case No: CO/1865/2019
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Daniel Stilitz QC and Hannah Slarks (instructed by Ward Hadaway) for the Claimant
Monica Carss-Frisk QC and Jane Collier (instructed by Trowers and Hamlins LLPTrowers and Hamlins) for the Defendant
Hearing dates: 15 – 16 January 2020
Approved Judgment
Introduction
By a claim filed on 3 May 2019, the Claimant (‘Inclusion’) challenges a ‘regulatory judgement’ (‘RJ’) of the Defendant (‘the regulator’), published in final form on 15 February 2019, in which Inclusion was assessed as ‘non-compliant’ in respect of financial viability and governance. Permission was granted by Sir Wyn Williams, sitting as a High Court Judge, on 8 August 2019. Mr Daniel Stilitz QC, for Inclusion, advanced five grounds of challenge, which overlap to some extent. They are that the regulator:
(a) failed to give adequate reasons for its decision;
(b) reached conclusions on risk, governance, financial viability and growth that were irrational;
(c) took an unlawful approach to risk, in breach of its own policy;
(d) unlawfully departed from its own policy on the grading of financial viability; and
(e) took a decision that was disproportionate, in breach of its statutory duties.
Ms Monica Carss-Frisk QC, for the regulator, does not accept that any of these grounds is made out. Additionally, she invites me to refuse relief on the ground of delay and on the ground that the grant of relief would be ‘detrimental to good administration’ within the meaning of s. 31(6) of the Senior Courts Act 1981 (‘the 1981 Act’); and because, even if the reasons given were inadequate, it can be said in the light of the reasons now supplied that it is highly likely that the outcome for the applicant would not have been substantially different, so that s. 31(2A) of the 1981 Act is engaged.
The legislative regime
Part 2 of the Housing and Regeneration Act 2008 (‘the 2008 Act’) establishes a regulatory regime for social housing. When the 2008 Act came into force, the functions of the regulator were discharged by the Office for Tenants and Social Landlords, also known as the Tenant Services Authority. Later, they passed to the Regulation Committee of the Homes and Communities Agency (‘HCA’), which is now known as Homes England, and then from 1 October 2018 to the Defendant. I shall use the statutory term ‘regulator’ to refer to these different entities without distinction.
Section 111 of the 2008 Act requires the regulator to maintain a register of providers of social housing. ‘Social housing’, often used interchangeably with ‘affordable housing’, means (a) low cost rental accommodation and (b) low cost home ownership accommodation: s. 68. This case concerns the former, which is accommodation made available for rent, where the rent is below the market rate, in accordance with rules designed to ensure that it is made available to people whose needs are not adequately served by the commercial housing market: s. 69. In relation to low cost rental accommodation, the ‘provider of social housing’ is the landlord: s. 80(1).
Social housing providers do not have to be registered, but may choose to be, for a variety of reasons. Where housing is acquired, built or converted by public grant, the landlord must be registered: s. 31 of the 2008 Act. This is not the reason that Inclusion is registered: its business model does not involve the use of public grant. But there are other advantages of registration. It may cause lenders and rating agencies to view private social housing providers more favourably. Moreover, many local authorities require social housing providers to be registered before they will use them to house those people on their waiting lists.
Section 116, headed ‘Entry in the register: voluntary registration’, imposes on the regulator a duty to register anyone who is eligible for registration and applies to be registered. The regulator has powers to set standards for the provision of social housing (see s. 193–198B) and to monitor compliance with those standards (ss. 199–210). Section 195 empowers the regulator to issue a code of practice which (a) relates to a matter addressed by a standard and (b) amplifies the standard. By s. 195(2), the regulator may have regard to any such code in considering whether the standards have been met.
An English body is eligible for registration if it meets the conditions set out in s. 112 and does not fall within the exceptions in s. 113: s. 112(1). Condition 1 is that the body (a) is a provider of social housing in England or (b) intends to become one. Condition 2 is that the body satisfies any relevant criteria set by the regulator as to (a) its financial situation, (b) its constitution and (c) other arrangements for its management. The exceptions in s. 113 are local housing authorities and county councils.
Section 92K defines the regulator's ‘fundamental objectives’. It requires the regulator to perform its functions with a view to achieving (so far as is possible) (a) the economic regulation objective and (b) the consumer regulation objective. By s. 92K(2), the economic regulation objective is:
‘(a) to ensure that registered providers of social housing are financially viable and properly managed, and perform their functions efficiently and economically,
(b) to support the provision of social housing sufficient to meet reasonable demands (including by encouraging and promoting private investment in social housing),
(c) to ensure that value for money is obtained from public investment in social housing,
(d) to ensure that an unreasonable burden is not imposed (directly or indirectly) on public funds, and
(e) to guard against the misuse of public funds.’
By s. 92K(5):
‘The regulator must exercise its functions in a way that—
(a) minimises interference, and
(b) (so far as is possible) is proportionate, consistent, transparent and accountable.’
The Governance and Financial Viability Standard, published in April 2015 (‘the Standard’), provides as follows at §1 under the heading ‘Required outcomes’:
‘1.1 Governance
Registered providers shall ensure effective governance arrangements that deliver their aims, objectives and intended outcomes for tenants and potential tenants in an effective, transparent and accountable manner. Governance arrangements shall ensure registered providers:
(a) adhere to all relevant law
(b) comply with their governing documents and all regulatory requirements
(c) are accountable to tenants, the regulator and all relevant stakeholders
(d) safeguard taxpayers' interests and the reputation of the sector
(e) have an effective risk management and internal controls assurance framework
(f) protect social housing assets.
1.2 Financial viability
Registered providers shall manage their resources effectively to ensure their viability is maintained while ensuring that social housing assets are not put at undue risk.’
So far as governance is concerned, there are four possible grades, which are set out at §4.2 of a document entitled Regulating the Standards, published in April 2018: G1, which is awarded where the provider ‘meets our governance requirements’; G2, where the provider ‘meets our governance requirements but needs to improve some aspects of its governance arrangements to support continued compliance’; G3, where the provider ‘does not meet our governance requirements’ and there are ‘issues of serious regulatory concern and in agreement with us the provider is working to improve its position’; and G4, where the provider ‘does not meet our governance requirements’ and there are ‘issues of serious regulatory concern and the provider is subject to regulatory intervention or enforcement action’.
As to financial viability, the Standard provides as follows:
‘2.4 Registered providers shall ensure that they have an appropriate, robust and prudent business planning, risk and control framework.
2.4.1 The framework shall ensure:
(a) there is access to sufficient liquidity at all times
(b) financial forecasts are based on appropriate and reasonable assumptions
(c) effective systems are in place to monitor and accurately report delivery of the registered providers plans
(d) financial and other implications of risks of the delivery plans are considered
(e) registered providers monitor, report on and comply with their funders' covenants.
…
2.5 In addition to the above registered providers shall assess, manage and where appropriate address risks to ensure the long-term viability of the registered provider, including ensuring that social housing assets are protected. Registered providers shall do so by:
(a) maintaining a thorough, accurate and up to date record of their assets and liabilities and particularly those liabilities that may have recourse to social housing assets
(b) carrying out detailed and robust stress testing against identified risks and combinations of risks across the range of scenarios and putting appropriate mitigation strategies in place as a result
(c) before taking on new liabilities, ensuring that they understand and manage the likely impact on current and future business and regulatory compliance.’
As with governance, there are four possible grades for financial viability: V1, which is awarded where the provider ‘meets our viability requirements and has the financial capacity to deal with a wide range of adverse scenarios’; V2, where the provider ‘meets our viability requirements’ and has the ‘financial capacity to deal with a reasonable range of adverts scenarios but needs to manage material risks to ensure continued compliance’; V3, where the provider ‘does...
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