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Law Commission provides welcome news for housing providers

The Law Commission's first response to its consultation on changes to Co-operative and Community Benefit Society law has provided welcome news for housing providers in England and Wales.

In September 2024, the Law Commission launched a consultation into potential changes to the law that governs Co-operatives and Community Benefit (Registered) Societies (CBSs). The review aims to modernise the law in this area, remove barriers and/or costs for Co-ops and CBSs and support a more proportionate and effective regulatory environment. 

Proposed changes

Some of the proposed changes could have significant implications for CBSs and registered providers of social housing in England (RPs) and Wales (RSLs). These include:

Changes to the definition of a CBS

The CBS definition will be amended:

  • to make it easier to register with the FCA and to promote consistency of purpose by requiring CBSs to carry out ‘business’ for the ‘sole benefit of the community’ (our emphasis);
  • to require membership to be 'open to all'; and 
  • to make one-member-one-vote mandatory at member level.

Removal of the mandatory registration exemption

The removal of the exemption that charitable CBSs have from mandatory registration with (and regulation by) the Charity Commission.

A suite of administrative changes 

These administrative changes include:

  • to introduce formal restrictions on the rate of interest that a CBS can pay on loans made to it, which would potentially mean board members having to demonstrate that the amount of any borrowing is 'necessary' and the rate it carries no more than is ‘reasonable’;
  • to require the FCA to keep a register of ‘officers’ (board members) of a CBS including their home addresses;
  • to set out in law the duties and responsibilities of officers aligned with directors’ statutory duties in company law; and
  • to simplify the execution processes for documents.

We worked with the National Housing Federation and Community Housing Cymru to encourage the regulated housing sector to respond to the consultation in light of the implications to CBS RPs and RSLs. We ran a webinar with many CBs RPs and RSLs in attendance and we provided draft specimen responses that they could use to form the basis of their own responses to the Law Commission. 

Provisional policy position

The consultation closed in early December 2024, and in mid-January 2025, the Law Commission released a ‘provisional policy position’ (PPP) setting out its current thinking in light of the responses to the consultation document. The PPP currently only covers part of the full consultation, but addresses some of the main proposals and brings a welcome degree of comfort to those members of the regulated housing sector that are CBSs.

New definition of a CBS

Concerning the new definition of a CBS, the Law Commission’s view is that it’s not necessary to amend the current one other than to state that the business of a CBS must be carried out ‘for the benefit of the community or a section of the community’ (our emphasis). This is to clarify that a CBS can benefit designated groups within the wider ‘community’ (in the case of RPs and RSLs, these will include individuals whose housing needs cannot be met on the open market). This reflects existing FCA guidance, but the Law Commission felt it would be helpful to write this in statute. 

Open to all memberships

In response to the feedback from the regulated housing sector, proposals for membership to be open ‘open to all’ are not to be taken forward. The Law Commission recognised that there are good reasons why membership could or should be restricted by some CBSs, for example where members are not the primary stakeholder group (in housing, this being tenants) and there are other, more effective ways of engaging with that group than via membership (and a regulatory requirement to do so). The cost of administering a large membership was also cited, as was the risk that vested interests could use membership to undue influence on a CBS. 

One-member-one-vote

The Law Commission concluded that, similarly to open membership, it is not appropriate to insist on a one-member-one-vote. There may be good reasons for weighted voting in some circumstances and the risk of the membership being hijacked by vested interests (particularly if coupled with open membership) means that, whilst there is still a presumption of one-member-one-vote, this can be displaced by the Rules of a CBS where there is a good reason for doing so.

Registration exemption with the Charity Commission

The proposal to remove CBS’ exemption from registration with the Charity Commission has been carried forward. The FCA (as the regulator of CBSs) and the Charity Commission both supported this to create parity with the currently regulated charitable sector and to promote public confidence. There was less agreement, though, as to who charitable CBSs should be regulated by for compliance with charity law. Respondents suggested this should be the Charity Commission, the FCA or (for housing associations) the English or Welsh housing regulator. The Charity Commission apparently expressed concerns about its capacity and resources to do so, particularly for housing associations, and the FCA was reluctant to assume the role (we do not know, from the PPP, what the English and Welsh Regulators’ views were but we can make an educated guess!) 

The PPP indicates the recommendation will be that the exemption be ended and it is likely that the Charity Commission will be designated as the principal regulator for formerly exempt charities. However, in very welcome news for the housing sector, the Law Commission was persuaded by the arguments we made that the current Regulatory Standards and robust regulatory environment that RPs and RSLs are subject to by the English and Welsh housing regulators means that they are ‘well regulated with bespoke processes befitting their specialised context’ and should therefore remain exempt from charity registration.

Next steps

At this stage, the Law Commission has not formally published its PPP but instead supplied it to a select group of key stakeholders (including the NHF in England and CHC in Wales, on behalf of the housing sector) and invited them to respond to it by 7 February 2025

This is not a second consultation. Instead, it is the Law Commission testing its thinking and suggested conclusions and recommendations for some – but not all – of the changes proposed by the consultation. Further PPPs are likely to be supplied by the Law Commission as it works its way through the consultation responses.

Conclusion and for more information

Overall, this represents a very good outcome for RPs and RSLs, who could have been significantly affected by requirements to open membership to anyone, affording all members a vote and registering with the Charity Commission and submitting to its regulation. Whilst the Law Commission may yet adapt its final views and recommendations in light of stakeholder feedback on these proposals, we hope that it is sufficiently persuaded that on these main points, this is the right approach.

For more information about the Law Commission consultation and the PPP, please contact me.

Overall... this represents a very good outcome for RPs and RSLs, who could have been significantly affected by requirements to open membership to anyone and afford all members a vote, and to register with the Charity Commission and submit to its regulation

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corporate governance, governance, group structures, local governance, regulation and charity law, strategic support, housing