Registered provider becomes latest casualty of long-term lease model

In July this year, Bespoke Supportive Tenancies Limited (BeST) breached the Regulator of Social Housing (RSH)’s Home Standard. BeST’s long-term lease operating model led to statutory safety checks becoming overdue or not being undertaken at all, across a ‘range of health and safety areas’. This followed a previous notice issued by the RSH in May 2019, where it found BeST to be non-compliant with the Governance & Financial Viability standard.

The long-term lease model is predominantly adopted by small housing providers that provide specialised supported housing (usually with a care provider package in place to support vulnerable residents). Most of the providers’ property portfolio is actually owned by private landlords or investment companies, who lease properties to the housing provider. Often, these lease agreements do not have break clauses and can exceed 25 years.

Problems with long-term leasing

Problems with this model can arise for many reasons. For example, where lease payments are linked to the Consumer Price Index, there is an inherent level of uncertainty around price fluctuations, which could see payments increase significantly within a relatively short amount of time. In addition, providers might suffer high void rates, perhaps due to reduced demand, lack of suitable tenants (as some homes will be specifically adapted) or the care provider might fail to renew its care package agreement. Equally, if the provider fails to maintain the condition of its properties and safety standards, the properties could be seen as less desirable, and difficult to let in what is already a niche market.

Furthermore, as many providers are reliant on Housing Benefit from the local authority to cover lease payments, should there be a change in welfare policy or rejection of a Housing Benefit claim, they are at risk of not being able to meet the lease payments, particularly if contingencies or insurances have not been well considered.

The majority of these issues are beyond the control of the provider, and in our view, this is why this model is problematic. Consequently, providers must ensure they have robust processes in place for rent collection, Housing Benefit claims, void management etc.

Sadly, BeST is not the first provider to be a casualty of the long-term lease model. The RSH has become so concerned about this approach, which also led to provider First Priority almost folding last year, it released a publication in April 2019 to highlight pitfalls and help providers avoid them. Of particular concern, is the RSH assertion within this publication that there have been cases where, ‘the tight margin between rental income and lease commitment has led to reduced expenditure on maintenance and statutory health and safety compliance.’

In our view, long-term lease models are beset with inherent operational and financial challenges and risk. At the very least, providers should ensure that lease agreements are sustainable at full occupancy and incorporate suitable contingency planning. But, robust governance and strategic oversight, financial stress testing, plus effective management processes and procedures are also important. Providers should also establish absolute clarity and understanding around responsibilities for carrying out compliance checks. Even where the provider does not have any legal compliance obligations, our belief is that providers have a moral duty to ensure residents are safe, and consequently that all legal and regulatory property compliance responsibilities are met.

How we can help…

For more information about how we can help your organisation to be certain of the RSH’s regulatory requirements, or to understand how our compliance services could help you, please get in touch with our specialist compliance team, by contacting our Head of Consultancy, Sarah Davies here.

Alternatively, you can click here to learn more about the risks that are associated with specialised supported housing.