Inclusion upgraded to compliant grade after ‘diluting’ risks relating to leases

Lease-based supporting housing provider Inclusion Housing Community Interest Company has had its governance and financial viability ratings upgraded.

The provider, which provides housing for adults with disabilities, has had its governance grading increased from ‘G3’ to ‘G2’ and its viability from ‘V3’ to V2’. This means the provider now complies with the Regulator of Social Housing’s Governance and Financial Viability standard.

Inclusion said it is the first predominantly lease-based provider to achieve compliance. The regulator has warned previously that lease-based providers would struggle to comply due to risks around long leases.

Inclusion had in 2019 been found non-compliant, with RSH saying it “lacked assurance that Inclusion’s risk management and mitigating actions were commensurate with its risk profile” and that it had sufficient mitigations “should risks materialise, to ensure its ongoing financial viability.” Inclusion subsequently unsuccessfully challenged the judgement in the High Court.

However in a fresh judgement today RSH said Inclusion has carried out improvement work since the 2019 judgement. It said it has commissioned independent advice and reviews and taken “corrective action” to demonstrate oversight.

It said: “We are satisfied that governance arrangements have been sufficiently improved to demonstrate an effective risk management, business planning and control framework”

The judgement said Inclusion’s business plan aims to “dilute” the risks of its long lease portfoilio. It has reduced the length of its leases overall to reduce liability compared to turnover. It has also reduced reliance on third parties to manage void risk and diversified its portfolio.

RSH warned however that Inclusion’s activity is “inherently low margin” and said its financial stability could be impacted if efficiency savings are not achieved.

RSH said: “Ongoing regulatory engagement will monitor Inclusion’s delivery of its business plan.

“The nature of the material risks faced by Inclusion means that we will continue to closely monitor its financial performance and its capacity to manage adverse scenarios on an ongoing basis.”

Under the lease-based model organisations provide accommodation to registered providers on long-term leases.

The RSH has said previously that relying on only long-term, inflation-linked leases increases the exposure of organisations to changes in inflation.

It said a business model that assumes income will be covered by housing benefit is also exposed to policy changes, while tight margins mean the model has limited capacity to manage shortfalls in income or increased costs.

RSH in 2019 said: “It is currently hard to see how a provider of SSH which is substantially financed by long-term leases and subsequent tight margins can meet the requirements of the Governance and Financial Viability Standard.

Responding to the judgement, Neil Brown, chief executive of Inclusion, said: “Inclusion Housing has throughout the last eleven years achieved stronger finances, exceptional productivity, more value for money, delivered top 3% tenant satisfaction while providing multi-million pound social impact benefits through the supply of over 5,000 new social housing units, while financially out-performing numerous G1 V1 providers.”

In other judgements today RSH removed a regulatory notice which said Sheffield City Council had breached the Home Standard due to issues with gas safety checks. RSH said these problems are resolved, but Sheffield remains at a “failing” C3 grade for consumer regulation.

Cobalt Housing, which manages around 6,000 homes in Liverpool, had its consumer rating upgraded from C2 to the maximum C1.

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