Decision

Regulatory Notice: Network Homes Limited (24 November 2021)

Updated 29 November 2023

Applies to England

RSH Regulatory Notice

• Provider: Network Homes Limited
• Regulatory code: 4825
• Publication date: 24 November 2021
• Governance grade: G1
• Viability grade: V2
• Reason for publication: Economic Standards
• Regulatory route: Reactive Engagement

Other providers included in the judgement

None

Regulatory Finding

The regulator has concluded that:

a) Network Homes Limited (Network) was not compliant with the legislative requirements of the Welfare Reform and Work Act 2016 (WRWA 2016) between 1 April 2016 and 31 March 2020. During this period, it charged inaccurate rents as a result of incorrectly applying the exception for Fair Rent ^{[footnote 1]} properties. The maximum number of homes affected was 425 of its general needs properties during 2019/20. This meant that Network did not comply with the WRWA 2016 requirement to apply 1% rent reductions for each of the years 2016 to 2020 to the rents charged for these properties.

b) Consequently, Network was not compliant with the Rent Standard 2020 as these incorrect rents were then used as the basis for subsequent rent rises under the Rent Standard.

The Regulator’s Findings

We have concluded that Network has not complied with the Rent Standard 2020 or the legislative requirements of the WRWA 2016 in respect of some of its Fair Rent tenancies.

From our review of data submitted by Network in its 2019/20 Statistical Data Return, we identified both that the average rent being charged for general needs properties had increased at a time when providers were required to reduce rents by 1% annually, and that a high number of general needs properties had rents which were in excess of the rent cap.

In response to our enquiries, Network explored the issues raised and identified that it had made errors in its treatment of some Fair Rent tenancies. As a result, Network commissioned a series of investigations to assess the scale and nature of the errors. These investigations identified that between 2016 and 2021, approximately £548,000 was overcharged as a consequence of Network applying incorrect increases in some of its Fair Rent tenancies instead of the required 1% reduction.

Network has concluded that the incorrect Fair Rents are due to a misinterpretation of the legislation when calculating the applicable rent increases, and the incorrect application of the exemption which existed in the WRWA 2016 for some Fair Rent tenancies (subject to the Rent Act 1977 rent criterion).^{[footnote 2]} These errors date back to 2016 and were not identified by Network’s own internal controls and remained undetected until our intervention.

Network has considered its approach to rent setting and annual rent changes and has developed an action plan. The key actions in the plan include:

• reimbursing and compensating tenants who have been overcharged;
• engaging appropriate external advice on the nature of the errors, how they occurred, and the corrective actions;
• commissioning an independent review of Network’s approach to rent setting, extending beyond Fair Rents; and
• improving audit and validation of rent setting and annual rent changes.

Network’s board has accepted the regulatory findings and is engaging positively with us, with support from external advisers, to take the steps necessary to resolve these issues.

About the provider

Network operates across London, Hertfordshire and the South East of England.

Network owns and manages around 21,000 homes. The majority of its homes are for general needs, but it also provides homes for supported housing, shared ownership, older people, intermediate and affordable rent, and for private rent.

About our Regulatory Notices

Regulatory notices are issued in response to an event of regulatory importance (for example, a finding of a breach of the Rent Standard or of a consumer standard that has or may cause serious harm) that, in accordance with its obligation to be transparent, the regulator wishes to make public. More detail about Regulatory notices is set out in ‘Regulating the Standards.’

Key to Grades

Governance:

• G1 (Compliant): The provider meets our governance requirements
• G2 (Compliant): The provider meets our governance requirements but needs to improve some aspects of its governance arrangements to support continued compliance
• G3 (Non-compliant): 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 (Non-compliant): 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:

• V1 (Compliant): The provider meets our viability requirements and has the financial capacity to deal with a wide range of adverse scenarios.
• V2 (Compliant): 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.
• V3 (Non-compliant): 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 (Non-compliant): 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.

1. For more information about ‘Fair Rents’, please see the Fair Rents guidance on GOV.UK and The Social Housing Rents (Exceptions and Miscellaneous Provisions) Regulations 2016 ↩

2. The Rent Act 1977 exemption is contained in the Welfare Reform and Work Act 2016 and provides that where the Social Rent Rate for a property covered by the Rent Act 1977 is higher than the Registered Rent then the 1% rent reduction does not apply. ↩