Decision

Regulatory Notice: Southern Housing Group Limited (24 November 2021)

Published 25 January 2023

Applies to England

Regulatory Notice

• Provider: Southern Housing Group Limited

• Regulatory code: L4628

• Publication date: 24 November 2021

• Governance grade: G2

• Viability grade: V2

• Reason for publication: Economic Standards

• Regulatory route: Reactive Engagement

Other providers included in the judgement

Rosemary Simmons Memorial Housing Association Limited, Southern Home Ownership Limited

Regulatory Finding

The regulator has concluded that:

a) Southern Housing Group Limited (Southern) 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 incorrect rents for 677 of its general needs homes, as a result of incorrectly applying the exception for Fair Rent ^{[footnote 1]} properties. This meant that Southern did not comply with the WRWA requirement to apply 1% rent reductions for each of the years 2016 to 2020 to the rents charged for these properties.

b) Consequently, Southern 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 Southern 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 Southern in its 2019/20 Statistical Data Return, we identified an increase in the average rent being charged for general needs properties at a time when providers were required to reduce rents by 1% annually.

In response to our enquiries, Southern explored the issues raised and identified that it may have made errors in its treatment of some Fair Rent tenancies. As a result, Southern commissioned a series of independent investigations to assess the scale and nature of the errors. These investigations identified that between 2016 and 2021, approximately £1.05m was overcharged as a result of Southern applying incorrect increases in some of its Fair Rent tenancies instead of the required 1% reduction.

Southern has concluded that incorrect rents were due to misinterpretations 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).2^ These errors dated back to 2016 and were not identified by Southern’s own internal controls and remained undetected until our intervention.

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

• resetting the rents in question to the correct levels;

• reimbursing tenants who have been overcharged;

• commissioning an independent review of rent policy and procedures to clarify lines of accountability, strengthen knowledge and skills and improve assurance on rent setting; and

• an internal audit review of validation of rent setting and annual rent changes.

The Southern 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.

The Social Housing Rents (Exceptions and Miscellaneous Provisions) Regulations 2016.

About the provider

Southern operates in the South East of England and the Isle of Wight.

Southern owns and manages over 30,000 homes. The majority of its homes are for general needs but it also provides homes for shared ownership, for older people, for 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 ↩