Decision

Previous regulatory judgement: Legal & General Affordable Homes Limited (22 February 2023)

Updated 25 October 2023

Applies to England

RSH Narrative Regulatory Judgement

• Provider: Legal & General Affordable Homes Limited
• Regulatory code: 5062
• Publication date: 22 February 2023
• Governance grade: G1*
• Viability grade: V1*
• Reason for publication: First assessment
• Regulatory route: In Depth Assessment

As noted in the body of the report, this judgement concerns an organisation that is designated a for-profit registered provider.

The registered provider is not at the head of its group. It is a subsidiary organisation within a larger group of connected companies.

The registered provider is not intended to operate as a standalone entity in the group structure. It requires the ongoing support of related parties to fulfil its functions and / or meet its objectives. The nature of this support is described in this judgement.

This judgement concerns the registered provider only and does not represent an assessment of the non-registered entities within the group.

Regulatory judgement

This judgement represents the regulator’s first graded assessment of Legal & General Affordable Homes Limited’s governance and financial viability. It concludes a G1* grade for governance and a V1* grade for viability.

Based on evidence gained from the In Depth Assessment (IDA), the regulator has assurance that Legal & General Affordable Homes Limited (LGAH) complies with the financial viability elements of the Governance and Financial Viability Standard. Its financial plans are consistent with, and support, its financial strategy. The provider has an adequately funded business plan, sufficient security in place, and is forecast to continue to meet its financial covenants under a wide range of adverse scenarios.

LGAH does not undertake any activity that does not relate to the provision of social housing. It is a for-profit registered provider.

It is protected from some financial risks through its intra-group arrangements, meaning it purchases properties at a fixed cost based on an independent valuation and benefits from protections that cap losses from void properties.

The capital structure of LGAH, with a significant proportion of its funding provided by way of equity investment from its parent rather than debt finance, provides assurance that it can maintain its financial viability without putting social housing assets at undue risk.

LGAH has demonstrated compliance with its liquidity policy. This policy is designed to ensure that there is always access to liquidity. LGAH has a track record of arranging funding solutions from within the Legal and General group of companies (L&G Group).

LGAH monitors, reports on and complies with its loan covenants. Stress testing of its business plan has shown that covenant compliance can be maintained in a wide range of downside scenarios.

Based on the evidence gained from the IDA, the regulator has assurance that LGAH’s governance arrangements meet the requirements on governance set out in the Governance and Financial Viability Standard. The regulator has assurance that the governance arrangements enable it to adequately control the organisation and to continue to meet its objectives.

LGAH is a subsidiary organisation within a group of companies. Its governance framework establishes clear roles and responsibilities for its board and contains appropriate probity arrangements.

LGAH can demonstrate that it has taken steps to ensure that the arrangements it has entered into do not inappropriately advance the interests of third parties. This includes the use of independent information that the board has the legal right, and budgetary control, to procure to support its decision-making.

LGAH has the same board members as the other four registered providers that are fellow subsidiaries of the ultimate parent company Legal and General Group Plc (L&G Group Plc). These registered providers are not included in this judgement. Governance arrangements have been structured so that board and sub-board decisions can be made in LGAH’s interests and without advancing the interest of one group registered provider inappropriately over another.

The housing management of LGAH’s properties is contracted out, predominantly to unconnected registered providers. Contracts containing information requirements, escalation and resolution provisions, and the ability to change the housing management provider if necessary, support the delivery of intended outcomes for tenants. Independent verification of information received from housing management providers is a feature of the overall risk and control framework.

Other providers included in the judgement

None.

About the provider

Origins

LGAH was registered as a for-profit provider of social housing in December 2018. It let its first properties in late 2019.

LGAH is a company limited by shares. Its ultimate parent company is L&G Group Plc, a multinational financial services and asset management company. This is the parent company of the L&G Group.

LGAH operates within a family of companies within L&G Group, with an aim to become a leading operator of affordable homes by investing long-term capital at scale.

Registered Entities

LGAH is the only registered entity covered by this Regulatory Judgement.

Legal and General Group Plc owns a further four registered providers that are not covered by this judgement. These are:

• Legal and General Affordable Homes (AR) LLP;

• Legal and General Affordable Homes (SO) LLP;

• Legal and General Affordable Homes (Capital) Limited; and

• Legal and General Affordable Homes (Development 3) Limited.

All were registered as for-profit providers of social housing in November 2021. Each provider will be subject to a graded assessment, following a future IDA.

Unregistered Entities

LGAH has no investment in unregistered subsidiaries, joint ventures or associate companies. Its immediate parent company is Legal and General Assurance Society Limited, an unregistered entity.

Its staffing function is supplied by Legal and General Affordable Homes (Operations) Limited, an unregistered entity, under an Investment Management Agreement.

LGAH purchases properties from Legal and General Affordable Homes (Development) Limited, Legal and General Affordable Homes (Development 2) Limited, which are unregistered entities, and Legal and General Affordable Homes (Development 3) Limited which is a registered provider.

Geographic Spread and Scale

At the year ended March 2022 LGAH owned stock in 64 Local Authority areas in all regions of England. It had a higher concentration of properties in London and other regions in the south of England than it had in the north.

At November 2022 LGAH owned 1,950 properties. It had also sold 938 properties to a sister registered provider, Legal and General Affordable Homes (AR) LLP.

Staffing and Turnover

LGAH has no staff. Staff functions are provided to LGAH by a sister company, Legal and General Affordable Homes (Operations) Limited, under an Investment Management Agreement.

In the year to December 2021, LGAH reported revenues of £15 million.

Development

LGAH does not undertake development directly. It purchases completed properties from companies under common control. LGAH added approximately 1,000 new properties to its stock holding in 2021 and around 1,400 in 2022.

LGAH is a strategic partner in the Affordable Housing Programme 2021-2026, with a grant allocation of £125m.

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.