Decision

Current regulatory judgement: Octavia Housing (6 September 2023)

Updated 6 September 2023

Applies to England

RSH Narrative Regulatory Judgement

• Provider: Octavia Housing
• Regulatory code: L0717
• Publication date: 6 September 2023
• Governance grade: G3
• Viability grade: V3
• Reason for publication: Governance and viability downgrades
• Regulatory route: Reactive Engagement

Regulatory judgement

This regulatory judgement downgrades our previous assessment of Octavia Housing’s governance grade from G1 to G3 and its viability grade from V2 to V3. This means that there are issues of serious regulatory concern that the provider is working with us to address.

During the 2022/23 financial year Octavia Housing (Octavia) informed the regulator that it had significantly underperformed against budget, creating a need to implement a substantial in-year savings programme and initiate covenant waiver negotiations. Investigations by the regulator identified that the board had not adequately considered the financial implications when taking on new liabilities or ensured appropriate monitoring of the risk thereafter. Therefore, the board of Octavia has not been managing its affairs with an appropriate degree of skill, diligence, prudence, and foresight.

The regulator lacks assurance that Octavia’s finance systems and resources are adequate to ensure its plans are monitored and accurately reported. Despite attempts to address this over a period of time, Octavia has been unable to make and sustain the changes required. This has led to poor quality and untimely financial data being produced, unrealistic budgets being set and has adversely affected the quality of returns submitted to the regulator.

Octavia’s financial position is weak and requires close and effective management. Since 2020/21 business plans have been built on the assumption that a significant efficiency savings programme will be delivered over the period 2020/2025, however progress to date in delivering that target has been slow.

The regulator lacks assurance that Octavia has a robust financial plan that it is capable of delivering. Octavia’s actual financial performance has been significantly worse than budget for the previous two financial years leading to the implementation of reactive non-permanent in-year savings programmes in those years. In addition, Octavia did not have an approved mitigation plan in place from which it could select and implement the substantial savings required to maintain covenant compliance for 2022/23.

Octavia continues to be exposed to material risks and although there is no immediate solvency issue, it has adapted its latest business plan to maintain its viability, following an external appraisal of the business at the beginning of 2023 in response to these challenges. It is progressing key actions, including disposals, resizing and temporarily pausing new commitments relating to development. Octavia’s business plan also requires a substantial programme of permanent savings and material receipts from the sale of high value housing assets. Given Octavia’s poor record of delivering against plans, that not all of the savings required have been identified and that the sales assumptions are not derived from a considered stock rationalisation strategy, we do not have the assurance that the plan will be delivered to ensure long term financial viability.

Octavia has acknowledged the regulator’s concerns and a governance improvement plan is being drafted. Octavia is working with the regulator to ensure it has the capacity and capability, and in conjunction with external advisers, the support to make the changes required to ensure its long-term viability and to address the governance and financial viability issues identified in this regulatory judgement.

Other providers included in the judgement

None

About the provider

Origins

Octavia is a traditional housing provider that is registered as a community benefit society. Octavia’s core focus is the delivery of social housing and related services in partnership with the local communities in the areas in which it operates.

Registered Entities

Octavia is the only registered entity.

Unregistered Entities

There are four unregistered entities in the group:

• Octavia Living Ltd develops, markets, and manages homes for outright sale;

• Octavia Foundation is a registered charity providing community support to Octavia’s residents;

• Octavia Hill Ltd is currently dormant; and

• Octavia Development Services Ltd is currently dormant.

Geographic Spread and Scale

Octavia owns and manages around 5,300 homes in central and west London.

Staffing and Turnover

At the year ended 31 March 2022, Octavia Group reported that it had employed the full-time equivalent of 389 employees and had turnover of £60.9m.

Development

Octavia is the lead partner in the Connected Partnership, a strategic development partnership with the Greater London Authority (GLA). The partnership was allocated £34.6 million by the GLA to deliver 197 new social homes in the 2021-2026 Affordable Homes Programme.

Octavia’s 2023 business plan includes a 386 unit development programme over the period 2023/2030, of which 203 units are committed units. The programme consists of a mixture of general needs, shared ownership and outright sale units.

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.