Decision

Current regulatory judgement: Heylo Housing Registered Provider Limited (21 December 2022)

Updated 21 December 2022

Applies to England

RSH Narrative Regulatory Judgement

• Provider: Heylo Housing Registered Provider Limited^{[footnote 1]}

• Regulatory code: 4668

• Publication date: 21 December 2022

• Governance grade: G3*

• Viability grade: V3*

• Reason for publication: First assessment

• Regulatory route: In Depth Assessment and Reactive Engagement

Regulatory judgement

This regulatory judgement is the first published assessment of Heylo Housing Registered Provider Limited’s governance and financial viability grades (G3/V3). The regulator has concluded that there are issues of serious regulatory concern and in agreement with us the provider is working to improve its position.

The arrangements that Heylo Housing Registered Provider Limited (Heylo RP) has entered into have resulted in it being unable to provide assurance that it meets the requirements of the Governance and Financial Viability Standard to ensure that social housing assets are not being put at undue risk.

Heylo RP has nominal ownership of properties under long leases with connected companies (investment pods) which secure funding from debt investors and grants. Heylo RP does not hold obligations for finance and derives no economic interest in the properties as all income is passed through to the investment pods via a managing agent, also connected to the Heylo group. Heylo RP relies on arrangements with its unregistered parent to fund its operations. The investment pods have the ability to require Heylo RP to surrender its leases in short order to protect their lender interest. Heylo RP was founded following acquisition of a registered provider and therefore did not go through a registration application to the regulator. Its business plan and wider governance arrangements were therefore not considered as part of the regulator’s registration assessment process.

Registered providers are expected to assess, manage and address risks to ensure their long-term viability, including ensuring that social housing assets are protected. The regulator lacks assurance that Heylo RP understood and managed the likely impact that arrangements with its parent, investment pods and managing agent would have on its current and future business and regulatory compliance. Further, the regulator lacks assurance that Heylo RP has taken adequate steps to fully identify risks and combinations of risks across a range of scenarios through detailed and robust stress testing and identify mitigating actions available to Heylo RP to protect its social housing. A deterioration of financial position in a group company could trigger a requirement for Heylo RP to surrender its leases. While Heylo RP may be able to take further steps to proactively monitor risks relating to the financial position of other group members, its ability to enact mitigations if risks in a group company are identified is limited because it requires the agreement of other group companies and consideration of their interests and priorities.

We expect registered providers to have adequate control over their social housing assets so that they can manage their resources effectively to ensure their long-term viability. Within its current business model Heylo RP has effectively ceded control of its social housing assets to the investment pods, leaving their future susceptible to decisions driven by the interests of connected group companies. These arrangements pose a significant risk to Heylo RP’s ability to protect its social housing assets and ensure its long-term viability.

In the context of its business model, the lack of economic interest in its properties and weaknesses in its governance arrangements, the regulator lacks assurance that Heylo RP is able to manage its affairs with an appropriate degree of independence to make decisions which are at all times in its best interest.

Our In Depth Assessment (IDA) of Heylo RP identified significant weaknesses in its governance, including: inadequate oversight of the services provided by the managing agent; weak arrangements for Heylo RP to be consulted on investment decisions; a lack of assurance that clear roles, responsibilities and accountabilities had been established for Heylo RP’s board; lack of appropriate terms of reference, standing orders or a framework of delegation; failure to review compliance with its chosen code of governance since its inception in 2017; and inadequate arrangements in place for Heylo RP to obtain appropriate support or assistance as necessary from its unregistered parent.

The regulator acknowledges that in response to the IDA and being placed on the regulator’s Gradings under Review list, Heylo RP has commissioned an independent review of its governance arrangements and compliance with its code of governance. Heylo RP has made some changes in its arrangements within the Heylo group which are intended to improve the support from its parent and strengthen its role in management of the properties and in investment decisions. Heylo RP has also made new appointments to its board. The regulator will continue to engage with Heylo RP to ensure that it addresses all the issues identified in this judgement.

Other providers included in the judgement

None

About the provider

Origins

Heylo RP is a private limited company and registered for-profit provider. It provides shared ownership accommodation which it leases from companies within the Heylo group.

Heylo RP acquired a registered for-profit provider, Three Conditions Limited in 2017. Heylo RP is a wholly owned subsidiary of its unregistered parent, Heylo Housing Group Limited (HHGL) which is owned by Manifesto Technologies Limited. The investment pods are subsidiaries of HHGL. The managing agent, ResiManagement Limited is also owned by Manifesto Technologies Limited.

Registered Entities

Heylo RP is the only registered entity.

Unregistered Entities

Heylo RP has an unregistered parent, HHGL. The Heylo group includes unregistered limited companies which own properties let by Heylo RP.

Geographic Spread and Scale

According to its accounts for year-end September 2021, Heylo RP had leasehold interest in 5,280 properties across England.

Staffing and Turnover

Heylo RP does not employ any staff. Staffing and administration for the Heylo group is provided by the managing agent. Heylo RP’s turnover reported in its annual accounts, which represents its operating expenditure, for year-end September 2021 was £17k. The turnover from properties let by Heylo RP, which is received as income by the investment pods, for year-end September 2021 was £16.8m.

Development

Heylo RP reported in its year-end September 2021 accounts that it intends to grow its portfolio to 17,000 homes in the next 5 years.

About our judgements

Key to Grades

Governance:

	Compliant
G1	The provider meets our governance requirements.
G2	The provider meets our governance requirements but needs to improve some aspects of its governance arrangements to support continued compliance.

	Non-compliant
G3	The provider does not meet our governance requirements. There are issues of serious regulatory concern and in agreement with us the provider is working to improve its position.
G4	The provider does not meet our governance requirements. There are issues of serious regulatory concern, and the provider is subject to regulatory intervention or enforcement action.

Viability:

	Compliant
V1	The provider meets our viability requirements and has the financial capacity to deal with a wide range of adverse scenarios.
V2	The provider meets our viability requirements. It has the financial capacity to deal with a reasonable range of adverse scenarios but needs to manage material risks to ensure continued compliance.

	Non-compliant
V3	The provider does not meet our viability requirements. There are issues of serious regulatory concern and, in agreement with us, the provider is working to improve its position.
V4	The provider does not meet our viability requirements. There are issues of serious regulatory concern, and the provider is subject to regulatory intervention or enforcement action.

Note: The use of an asterisk (‘*’) against a grade indicates that the assessment refers to a provider that is designated as being for-profit.

Definitions of Regulatory Routes

In Depth Assessment (IDA): An IDA is a bespoke assessment of a provider’s viability and governance, including its approach to value for money. It involves on-site work and considers in detail a provider’s ability to meet its financial obligations and the effectiveness of its governance structures and processes.

Stability Checks: Based primarily on information supplied through regulatory returns, a Stability Check is an annual review of a provider’s financial position and its latest business plan. The review is focused on determining if there is evidence to indicate a provider’s current judgements merit reconsideration.

Reactive Engagement: Reactive engagement is unplanned work which is triggered by new information or a developing situation which may have implications for a provider’s current regulatory judgement.

Stability Checks and Reactive Engagement: In some cases, we will publish narrative regulatory judgements which combine evidence gained from both Stability Checks and Reactive Engagement.

For further details about these processes, please see Regulating the Standards.

1. Please note that this judgement concerns the registered provider only (Heylo RP) and does not represent an assessment of non-registered entities within the group or their ability to provide support to the registered provider, although we do take into account risks to the registered provider from its relationships with the wider group. ↩