Tag Archives: tenant led

Pouring money down the drain

Fans of the Right to Transfer may have wondered where I’ve been these last many months, well the truth is that there hasn’t been much I could say.  The Right to Transfer (RTT) process at Bushbury Hill EMB has been in a holding pattern, hopefully I’ll have some more interesting news in the near future.

In the meantime there has been one useful clarification over the Right to Transfer process which I can give an update on.  The Department for Communities and Local Government have made it clear that any RTT application must fully cover the cost of not only the HRA debt attributable to the stock to be transferred, but the cost of any redemption premia if that debt is repaid early.

Attributable debt

Under HRA self financing all stock owning authorities in England have HRA debt.  For a partial stock transfer such as an RTT proposal, the a portion of this debt is attributed to the homes being transferred – this should be a fair proportion based on the condition, type and rents of the stock.  The purchase price paid by the landlord buying the stock has to be enough to cover repayment of this attributable debt.

Debt Repayment Premia

However, if the local authority intends to use the transfer proceeds to pay off the attributable debt then it will incur debt repayment premia – they have to pay for the loss of interest that would have been due if the debt was not repaid early.  For a tenant group to have a business plan approved by the HCA it will have to demonstrate that the price paid to the local authority will be enough to cover the attributable debt plus any premia.  There is no Government funding available to assist with any shortfall.

Money down the drain – why pay interest twice on the same capital?

It is safe to say that stock owning councils have HRA business plans which involve borrowing money in order to invest in their homes or build new ones.  You may be wondering why any local authority would therefore want to send any capital receipt from transfer and send it to the Treasury instead of putting it to good use in their community. Doing this means that they end up paying two lots of interest on the same amount of capital – the debt repayment premia on the attributable debt and then interest on new borrowing for the same amount to support their HRA business plan.  It creates an unnecessary transfer of  money from the local authority to the Treasury . This money is no longer available to invest by the council, which is effectively pouring its tenants’ money down the drain.

Can’t you think of anything better to do with the money?

Small

The real reason for a local authority to say that it wants to repay the attributable debt is to drive up the cost of the transfer in an attempt to stop tenants exercising their statutory Right to Transfer.  However in light of the housing crisis, building some new homes would be a better use for the money.

Clarity is a good thing

It would be better if DCLG required local authorities seeking to repay attributable debt to demonstrate they had no borrowing in their HRA business plan and therefore no use for the capital receipt.  On the plus side, at least tenants now have a clear position form which to work, in order to make an RTT proposal fly they will have to ensure that they can come up with a business plan which will cover the attributable debt and debt repayment premia.  It is the fate of Bushbury Hill EMB as the pioneer of the Right to Transfer to iron out all the wrinkles in the process and hopefully make things clearer, if not easier, for other tenant groups in future.

 

Right to transfer offers written by councils that oppose them? This is illogical.

The current statutory guidance on consulting tenants about a housing transfer was published in July 2009 and takes no account of tenant led schemes under the Right to Transfer (RTT) which had been enacted in 2008 but not implemented by regulation until December 2013. This means that the Offer Document to tenants is the responsibility of the very council that opposes the tenants’ wishes which is illogical.

The 2009 guidance states:

Tenants need to understand why the local authority is proposing to transfer their housing (Annex 1, Para.9)

However in RTT cases the council is not proposing the transfer, in fact they are opposed to it. This internal contradiction demonstrates why it makes no sense for the Offer to come from the council.

Just as the housing transfer manual has been re-written to acknowledge the tensions inherent in RTT and transfer some responsibilities from councils to the tenant group, the guidance on tenant consultation similarly needs to be updated.

RTT is a tenant led process, the proposal to transfer is that of the tenants, not the council and so the Offer should be produced by and from the tenant group. To get to offer stage the tenants have already complied with a regulatory framework and the RTT statutory guidance, they can just as well comply with the guidance at consultation stage.

The substance of 2009 guidance is still sound, I don’t think it would take much to update it to include tenant led transfers and make it clear that the offer belongs to and comes from the tenants with the accompanying duty to take proper account of the guidance.

Being a trailblazer means having to work with the existing structures, even if they are no longer quite fit for purpose. Whilst this is not always easy, it does flag up those issues that need to be addressed so that RTT can work properly. So let’s hope that future RTT have a new version of the guidance that empowers tenants.

Housing transfer manual 2015/16

100 million) for the next transfer programme and the publication of the stock transfer manual for 2015/16.  Their press release takes an interesting angle, promoting it as an opportunity for tenant empowerment through the Right to Transfer (RTT).  The first Para reads:

Council tenants wanting more influence and control over their homes will have access to a share of £100 million.

Council tenants wanting more influence and control over their homes will have access to a share of £100 million to do just that, Housing Minister Kris Hopkins announced today (14 July 2014).

Mr Hopkins said the fund will help unlock further investment in maintaining and building social homes across the country.

Since November 2013, tenants living in council housing have had a right to request that the management of their homes be transferred to a housing association – and that the council cooperate in that process.

From today, tenant groups wanting to exercise this Right to Transfer will be able to bid for a share of this £100 million fund to help that process, with the money becoming available from next year.

The £100 million fund is also available for councils wishing to transfer their stock, with proposals that provide good value for money and have the support of residents.

In my view it is a good thing that the RTT is being promoted in this way and crucially that the stock transfer programme remains open for business with funding available to support it.  I led a workshop on RTT at the recent National Federation of TMOs (NFTMO) and it was full, so there is definitely the appetite for RTT within the TMO world.

Whilst I welcome the push behind RTT there is no prospect of TMOs making much of a dent in £100 million, even if debt relief is needed.  So I can only assume that the Government also expects some local authorities to be making applications for this round.

Speaking of applications, the 2015/16 transfer manual now includes two versions of the application for transfer (Annex A) to be submitted to HCA as referred to in my previous post.  This recognises that it makes no sense for applications for tenant led transfers to come from the local authority.

Tenant led application to HCA

The newness of the Right to Transfer (RTT) means that all involved are feeling their way through to a certain extent.  This means that some of the well understood processes for large scale voluntary transfers are having to be rethought.  One example of this is the formal submission of a transfer proposal to the Homes and Communities Agency (HCA).

To date LSVTs have all (nominally) had the support of the local authority concerned.  It was therefore logical that the council make the application to the regulator.  With RTT the local authority is not in favour of the transfer and may be actively hostile.  It was therefore anomalous that the application pro forma in Annex A to the March 2015 Transfer Manual only allowed for applications with the support of the local authority.

Whilst councils involved in a RTT situation would be likely to comply with their statutory obligation to co-operate with the tenant group exercising the RTT, it was still odd that the elected members would have to pass a resolution giving support to a proposal that they did not believe in.  From the tenants point of view it was also a potential stumbling block which would allow their council to obfuscate or delay the process.

This situation has been resolved by a common sense approach from the HCA who have come up with a RTT version of the Annex A pro forma where the application comes from the tenant group.  This is eminently sensible and puts control where it should be – with the tenants.  The requirements and need to make a strong case for transfer are still there, but it is for the tenant group to make the case.  This is great news for Bushbury Hill EMB due to the tight timescale we’re working to, but will also make things clearer for other tenant groups in future.

Choosing a transfer partner

The tenant Board at Bushbury Hill EMB have been pursuing stock transfer for at least a decade now, so no-one could accuse them of rushing into things.  However, the very small window for the current stock transfer programme means that things are currently moving at a very fast pace.  The Board has had a long time to work out what it wants to achieve with transfer, so it was not necessary to have a long and protracted partner selection process.  Choosing a transfer partner has been breathless for all concerned, but a choice has now been made and I’m confident it is a good one.

Blind Date or Invitation Only?

There is no requirement for tenants using the Right to Transfer (RTT) to hold a beauty contest when choosing a potential new landlord; the choice is theirs to make.  Assuming they want to join an existing housing association then it open to them to decide on a partner and proceed from there.  As discussed in an earlier blog, for tenant groups with few resources, getting a partner on board at the start my be the best way to make the RTT possible and there is also scope for housing associations to approach tenant groups with an offer.

However, there are clearly benefits to introducing some competition to the process as potential partners are likely to make their most generous offer.  The decision we had to make was whether to have an open process, or to invite selected HAs to take part.

Our Board decided to go with the “invitation only” approach.  They wanted to be sure only to approach organisations that were a) relatively local and b) that they would be comfortable working with.  There was also a consideration of time and resource pressure; it would have been hard for a small organisation to cope with an “all comers” process.  It was hard enough with six invitees, if  we’d had to field enquiries and visits from many more it would have been quite disruptive.

The assessment would have become unwieldy with more participants.  Board members had to analyse and consider each 30 page submission against our requirements.  It would have been a big ask of volunteers to do this for many more potential partners in the short time we had available.  Once the written submissions were assessed by the Board, this produced a short list of two who were invited to take part in the final stages of the selection.

Showcase to tenants

The next step was a showcase event giving tenants the chance to see what each potential partner was offering and to ask their own questions.  We held this event on a Saturday as this meant the majority of tenants would be able to attend, even so I was a little worried no-one would come.  In fact we had a respectable turnout and those tenants who came seemed to find it a useful exercise.  One thing I was surprised about was the length of time most tenants spent talking to the two organisations, having taken the trouble to come, they wanted to get the most out of it.

Tenant feedback

Crucially, in order to make it meaningful for the Board, we asked attendees to complete a simple response sheet, telling us what they liked about each potential partner and any other comments.  Without this feedback the showcase  would not have helped the Board in the selection process.  In fact we had lots of really good feedback from tenants, mostly positive about both potential partners.

One tenant was upset that he was not personally involved in the entire partner selection, but it would have been impractical to say the least to have a selection panel of c.1200 tenants.  To assess detailed and technical bids was hard work for our experienced tenant Board members, there would be no sensible way to include all tenants in the same way.

Visits

Prior to the final decision, the Board visited each of the potential partners to give them an opportunity to demonstrate some of their good work on the ground.  These visits were very pleasant and gave the Board the chance to meet more staff and tenants from each organisation.

It was quite tricky for them to make the best use of these visits as they needed to show things which would be relevant to Bushbury Hill post transfer.  It is fair to say that one visit was a lot better at highlighting the added value that would be available to Bushbury Hill from joining that organisation.  This wasn’t make or break, but it showed the benefit of really focussing your message on what is most important to those assessing the bid.

Presentation and interview

This was the last stage in the process and along with the written submissions, carried the greatest weight.  Board members set the interview questions and scored the answers, it was really important to them to make clear that this was a tenant led process .

For the presentation the Board asked the potential partners to consider how to help BHEMB address the social and economic challenges in Bushbury Hill in the long term.  This is pertinent because the homes are now in pretty good shape and will remain so if transfer goes through, but the other challenges that face our community remain.  We also asked how they would try to deliver a “Yes” vote in the transfer ballot – we’ve never been through it, they have, so we wanted to have some good ideas and a clear plan for involving the community

A note on scoring

There are lot of ways to do this, in the end we decided that whilst each Board member would score individually, the final score for each element or question would be a consensus score.  This is more involved than simple averaging, but the downside of averages is that outliers can significantly affect the results.  With an agreed score, people have to opportunity to discuss different views and analysis.  We had some questions where one person scored 1 and another 5, by allowing each to explain their reasoning any misunderstandings could be identified and the group could work through to reach a consensus.  No scoring system is perfect, but I think this method produced fair and accurate results.

Decision time

I don’t know what the final discussions were as the Board took this decision with no officers present.  They had two excellent options, so there wasn’t right or wrong option.  They chose Wrekin Housing Trust as their stock transfer partner.

WHT’s proposal was excellent and offers:

  • long term security of tenant control in Bushbury Hill,
  • an excellent financial offer,
  • added value in terms of new services,
  • will help us address social and economic challenges
  • provides new homes and stock diversity
  • opportunities for BHEMB to grow

All we have to do now is win the ballot…

Feasibility Study stage completed

The irony of being in the middle of the first Right to Transfer (RTT) process is that I have little time to blog about the first Right to Transfer.  Anyway there is much to update on where we have got to.

Following the vote by the members of the EMB to pursue transfer to an existing Registered Provider at their EGM, all tenants were consulted to gather their views.  The RTT regulations require the tenant group to confirm that there is no groundswell of opposition to the proposal.  In Bushbury Hill there certainly appears to be no such majority against the suggestion – in fact no tenants said they were opposed.  This comes as little surprise to me; we’ve been talking to tenants about exploring the benefits of transfer for the last 10 years and as far as I can tell, the mood is very much “Get on with it”.

So we have got on with it.  On Friday 7th March 2014 Bushbury Hill EMB became the first tenant group to provide a Feasibility Study Statement under the RTT regulations.  This provided the Council with our assessment that tenant led stock transfer is financially possible and advantageous to the tenants.  The Council now has 28 days to accept or reject the Feasibility Study Statement as valid under the regulations or to go to the Secretary of State for determination against the RTT proposal.

Time is of the essence so while we wait for the response we have started the process of choosing a partner housing association.  The tenants overwhelmingly support the EMB’s management of the estate, so whoever is chosen must guarantee the long term continuity of tenant control in Bushbury Hill.  They also need to deliver the capital investment that tenants want and deserve.  There are risks in everything, but the Board have approached potential partners that they believe can offer a good fit in terms of reputation, ethos and investment.  The outcome of this process should be known later in March.

Stand alone or choose a partner housing association, what’s best for tenant managers?

Tenants using the Right to Transfer have many decisions to make, but perhaps none is more important than who the landlord will be.  In essence it is a choice between setting up a new stand alone landlord of their own, or joining an existing housing association.  Both have pros and cons, tenants in Bushbury Hill have made their decision and in this post I examine the reasons behind this.

Tenants vote to pursue transfer and look for a partner housing association

Council tenants in Bushbury Hill EMB have decided to press on with the Right to Transfer and choose a new landlord.  On 13th February 2014 an Extra Ordinary General meeting voted by a very large margin – 40 in favour, 7 against – to pursue the Right to Transfer and look for a partnership with an existing housing association.  Tenants are now being advised about this decision and have their opportunity to give their views.

Unless there is a groundswell of opposition to the democratic decision taken by the mass membership then Bushbury Hill will produce and send a Feasibility Statement to the Council.  This is the final part of the Feasibility stage of the Right to Transfer.

Governance and tenant control

It may seem counter intuitive for a tenant led organisation to pursue transfer in conjunction with an existing housing association, but there are clear benefits.  If Bushbury Hill EMB were to become a landlord in its own right, this would actually be the most disruptive option.  At present the board is 100% tenants, this gives tenants maximum control of their EMB.  A housing association board would have to contain independents and quite possibly council nominees as well.  Even with a tenant majority, there would be fewer places available for tenants to become board members.

No less control than now

Tenant empowerment will be maintained by entering into a partnership with the new landlord on the basis that Bushbury Hill EMB continues to manage the estate and provide services to tenants with a high degree of local autonomy.  In fact this is a pre-requisite for any agreement.  The Board will only agree to a deal that delivers the same or greater local autonomy than they enjoy now.

The EMB is used to having working with a landlord who retains some responsibilities and has a measure of control.  At present the Council decides issues such as the tenancy agreement, tenure, rent increases and overarching allocations policy and Bushbury Hill has worked within this framework for nearly 16 years.  The Council is also responsible to the regulator.  There is no reason why a similar relationship cannot work equally well with a different landlord.

Managing risk

One of the key reasons to look for a partnership rather than going it alone is to manage financial risk.  There are many very successful small housing associations but size is not a key factor in the Bushbury Hill decision.  The factors which increase perceived financial risk for Bushbury Hill are:

As part of a larger organisation there is more capacity to spread risk across the whole organisation.  We would also expect a larger landlord to have more capacity to absorb financial shocks (cases such as Cosmopolitan Housing Group are notable for their rarity).

Consequences in a worst case scenario

If Bushbury Hill EMB was standalone and got into serious financial or governance difficulties, then they would be forced to look at a merger or potentially the HCA would step in and take measures such as replacing the board or ultimately have another landlord take over.  In such a situation, tenants would no longer be in a position to negotiate an advantageous deal.  It would be highly likely that tenant management would not survive in such circumstances.

On balance it makes sense for tenants to make the best possible deal up front whilst able to choose the landlord and in the best position to reach a mutually beneficial arrangement that enshrines tenant control.

Lack of interest

The cost of borrowing is directly linked to the perceived risk and if Bushbury Hill were to stand alone, lenders would take into account all the risk factors listed above and price them into their lending.  This would inevitably mean that more of tenants rent money would have to be committed to repay the debt and nothing is less productive (for the borrower) than money spent on interest.

Choosing the right partner should give comfort to lenders and lead to lower borrowing costs.  Over 30 years this will save significant amounts, allowing more money to be spent on tenants and get the debt repaid sooner.

So now to choose

For all of these reasons, the tenants have decided that finding a partner landlord with a complementary ethos and willingness to support tenant management offers the best chance to achieve their long term objectives.  It will be interesting to see what is on offer from potential partners.