Whether housing associations should change their status
A number of Housing Associations are rumoured to be seeking to “de-register” with the Charity Commission following a change in the law around the disposal of housing stock brought in by the Housing and Planning Act 2016.
In reality, only about a third of housing associations are actually registered charities having been set up as charitable companies rather than the more usual (for social housing providers) charitable community benefit societies (previously known as industrial and provident societies) which are exempt charities.
So what exactly has prompted this professed desire to “de-register”; what does “de-register” actually mean; and what implications are there for the wider charitable sector? Why would anyone want to give up their precious “Registered Charity Number” when so many other organisations chase it like the Holy Grail?
Current prompt
The current prompt for questioning and potentially deciding to move away from registered charity status is that when Schedule 4 of the Housing and Planning Act 2016 is fully implemented disposals of housing stock will become more simple for housing associations which are community benefit societies, but arguably more complex for those which are companies registered as charities with the Charity Commission.
The reason for this is that the restrictions on disposals of charity land which are contained in sections 117 to 121 Charities Act 2011 do not apply to exempt charities and for many years housing associations have only had to comply with a requirement for consent to the disposal under Housing Acts by, in England, the Homes and Communities Agency and in Wales, the Welsh Government.
It is this requirement for consent which is being removed (with the intention of making it easier for housing associations to dispose of land and buildings).
Why fuss
So what about housing associations which are registered charities? Why are they making a fuss? The Charities Act 2011 (like earlier charity legislation which it replaced) contains a provision (s.117(3)(a)) that if authority for the disposal of land by a registered charity is granted by provisions of another Act of Parliament (in this case the Housing Acts) then the restrictions on disposal in the Charities Act 2011 don’t apply.
By taking away the requirement for consent from a Regulator under the Housing Acts, s.117(3)(a) will no longer allow the housing association which is a registered charity to dispose of land without complying with the Charities Act 2011 provisions (either an order authorising the sale granted by the Charity Commission or compliance with a statutory procedure requiring advice from a qualified surveyor).
More regulated
Whilst it will be possible for the registered charity housing associations to comply with Charities Act 2011 procedures, it is true to say that disposals of land and buildings by them will be more regulated than disposals by housing associations which are not registered charities.
Mind you, who on earth would sell land or buildings without a surveyor’s advice? Surely any trustees (whether of a registered charity or of a community benefit society exempt charity) would want to be able to cover their own back and if necessary prove with appropriate evidence that the sale was on terms which were in the best interests of the charity?
Even the most ordinary of house sellers gets one or more estate agents to value their property before selling it!
Possible trigger
However, this additional requirement relating to land and building sales for Housing Associations which are registered charities might well be the trigger for looking more closely at the possibility of changing their legal status.
This would be a change from being regulated by Companies House and also registered with and regulated by the Charity Commission (and HMRC for charity tax benefits) to a community benefit society registered with and regulated only by the Financial Conduct Authority (FCA) while continuing to benefit from being registered with HMRC for charity tax benefits.
There is a relatively simple statutory process which can be used to achieve this (s.115 Cooperative and Community Benefit Society Act 2014). Usually we see the process working in the other direction using s.112 to convert a charitable community benefit society into a charitable company (mostly to obtain a Registered Charity Number).
What this illustrates is that to a very large extent an organisation can choose the degree to which it wishes to be regulated by the Charity Commission.
Status wrapper
“Charity status” is, in simple terms, a wrapper which goes around many different legal structures from trusts to Royal Charter Corporations and with a variety of legal entities in between. Public recognition of that status is granted (in England and Wales) either by being registered with the Charity Commission and/or by being granted access to charity tax reliefs (and Gift Aid) by HMRC.
The fundamental principle is that the organisation must have a purpose which falls within one of the descriptions of charitable purposes in the Charities Act 2011 and conduct activities in furtherance of that purpose for the public benefit.
And that is where the similarity between all charities begins and ends
Within certain parameters, legal structure and method of registration and regulation are down to individual choice.
So why do so many charities fight tooth and nail for that Registered Charity Number, which the housing associations we are talking about are prepared to ditch in order to be able to sell their land without complying with steps which are there to ensure that charities (and their trustees) are properly protected?
Analysing merits
To answer this we need to analyse the pros and cons of “registered charity” status v “exempt charity” status.
The pros (of registered charity status) are:
- Setting up a charity which will be required to be registered with the Charity Commission is generally less expensive than setting up a community benefit society and registering with the FCA.
- Being registered with the Charity Commission usually means registering with HMRC for charity tax reliefs is a formality.
- Having a Registered Charity Number to quote is thought to make fundraising easier, applications for business rates reliefs more straightforward and many grant funders only accept applications from “registered charities” i.e. registered with the Charity Commission.
- Community benefit society and exempt charity status (and before 2014 industrial and provident society and exempt charity Status) is little known outside the social housing and supported living sector and is largely unknown to the public in general.
The cons (of registered charity status) are:
- Registered charities are generally more heavily regulated than exempt charities, in particular:
- It may be more difficult to remunerate (pay) trustees of a registered charity than an exempt charity.
- It is very difficult (though not impossible) to establish registered charities with a share structure but it is relatively straight forward for a community benefit society with a share structure to be recognised as an exempt charity.
• Exempt charities do not file their annual return and accounts with the Charity Commission.
• Exempt charities do not have to comply with the restrictions on disposal of charity land in the Charities Act 2011.
There are several cases every year of community benefit societies seeking to convert to become charitable companies registered with the Charity Commission for the reasons outlined above and it is going to be really interesting to see whether those housing associations which are registered charities will indeed trade in this privileged status for the dubious gain of reduced regulation when wishing to dispose of land and buildings.
Unanticipated consequences
Housing associations which do choose to change may have to deal with unanticipated consequences. Whilst a conversion does not mean that they are a new legal structure (they will be the same continuing body), the terms of contracts and funding arrangements from banks and others may require consent to the conversion from a funder.
There have been examples in the past of banks using applications for consent to a change of status as their own trigger for a review of funding arrangements leading to higher interest rates and new arrangement fees being charged.
Documenting reasons
Trustees will certainly need to be very careful to take advice which covers all the possible implications of the change of status. They will need to document the reasons for their decision and demonstrate that the change (and incurring the costs associated with a change of legal status in this way) is in the best interests of their charity (and its beneficiaries) and not just made to avoid legislative requirements which they happen to think are inconvenient.
