The scale and complexity of activities being undertaken by Registered Providers of Social Housing (RPs) in today’s society means it has become the norm for most RPs to use a range of legal entities to achieve its objects, referred to as its ‘corporate group’.
RPs’ corporate groups typically include entities undertaking property management, development, home ownership and/or fundraising. It is normal for some of these entities to be charitable and others, such as development companies, to undertake non-charitable trading activities with profits re-invested back into the RP group’s core activities of providing affordable housing to vulnerable people. Given the regulatory, risk, funding, commercial and legal constraints on RPs, a degree of corporate complication across their corporate group is therefore usually inevitable.
Many larger RPs also have group structures which reflect the legacy of mergers, where the historic preferred approach of the merging entities has been to use various corporate bodies to maintain a degree of ‘ringfencing’ from unknown and/or undesirable risks. The merged entity often therefore comprises one single ‘corporate group’ consisting of more legal entities than either of the original merged entities and with a degree of duplication of purpose that can be rationalised in time.
In light of this, we suggest RPs should keep in mind the purpose and responsibilities of each group entity especially when undertaking a review of structures and/or setting up any new subsidiary.
The interaction between the parent and each entity should be considered from a legal and governance perspective and, to provide clarity, can be formally documented in an intra-group agreement (IGA). An IGA can be a helpful way to demonstrate not only transparent governance, but also how oversight and control are exercised between the parent entity and the other group entities. It can reinforce the ownership and control mechanisms that are already baked into the legal constitution of the relevant entities. Such an agreement is promoted by the NHF code of governance and is recommended as a way to clearly set out the constitutional relationship and arrangements between entities.
Note that these IGAs are distinct from project-specific agreements between group entities that might typically relate to particular development, funding or tax arrangements. These project-specific agreements are not the subject matter of this note.
A well-drafted IGA will contain provisions detailing the roles and responsibilities of the parent and subsidiary as well as the operational freedom of the subsidiary and the parent’s powers of intervention, if any. The extent of the provisions contained in an IGA will likely vary depending on the function of the subsidiary, its charitable status and the nature of its underlying constitutional arrangements and governance documents. IGAs are often used in conjunction with data sharing agreements which regulate and control the use of personal data across the group.
It is suggested that an IGA is more important for entities in the corporate group that undertake non-charitable activity, such as development vehicles, where the commercial risks associated with the activity are greater. For these entities, the IGA should detail how the non-charitable objects of the development subsidiary dovetail with the charitable objects of the RP (usually group parent).
RPs with unwieldy group structures will likely find having an IGA in place more beneficial than those with fewer subsidiaries, however, regardless of size or complexity, IGAs should be considered by any RP.