HM Insights

Registered Social Landlords - updating your constitution to comply with SHR regulations

Start preparing now

Registered social landlords will no doubt be conscious of the fact that they will have to formally amend and update their constitutions by 1 April 2015 in order to fully comply with the relevant provisions of the Scottish Housing Regulator's regulatory framework.

While that date still seems some way away, it would be prudent to start timetabling the process sooner rather than later, particularly if an organisation normally convenes a special general meeting for the purposes of considering rule changes on the same day as the organisation's annual general meeting, which has to take place by the end of September each year.

RSLs should be mindful of the following points:

  1. The starting point in the change process should be providing a report to the organisation's governing body, outlining the key requirements of the regulatory framework which require to be incorporated within the constitution, and comparing and contrasting the new proposed constitution with its existing one. If the RSL is registered as an industrial and provident society ("IPS") then the most obvious way forward will be to use as a starting point the 2013 model rules which have been published by the Scottish Federation of Housing Associations ("SFHA"). The regulatory framework makes clear that RSLs are expected to demonstrate that they have fully considered the benefits and risks attached to any proposed rule changes, so the preparation of a detailed report to the Committee or Board, with input from the organisation's legal advisers if appropriate, will provide a sound basis for the governing body to then take decisions on updating the organisation's Constitution – particularly since there are some optional clauses within the 2013 model rules.
  2. If the organisation is a charity, it will need to establish whether an application requires to be made to the Office of the Scottish Charity Regulator ("OSCR") for consent to any changes to the charitable objects clauses within its rules. It is likely that OSCR's consent will be required, unless the RSL's current rules are based upon the last model rules published by the SFHA in 2011.
  3. Organisations should check whether they need to consult with, or obtain the consent of, any of their funders to the proposed constitutional changes, in order to comply with the terms of any loan agreements.

When considering the terms of the 2013 model rules, organisations should also be conscious of not slavishly following the new model, if the organisation's current rules contain 'bespoke' provisions to reflect its particular governance arrangements – for example, membership categories or Board member constituencies, or clauses enabling the organisation to enter into stand-alone financial derivatives.

9 Year Rule – or is it 12 years?

There is also one point of detail which is worth highlighting, in relation to the so-called "9 Year Rule". One of the key requirements of the regulatory framework requires RSLs to have a "formal, rigorous and transparent process for the election, appointment and recruitment of governing body members. The governing body annually assesses the skills, knowledge and diversity it needs to provide capable leadership, control and constructive challenge to achieve the RSL's purpose, deliver good tenant outcomes and manage its affairs". The framework also expects RSLs to "plan effectively to achieve the appropriate and effective composition and profile of governing body members through ongoing performance evaluation and active succession planning. The governing body is able to assure that any non-executive member seeking re-election after nine years' continuous service can demonstrate their continued effectiveness".

In order to give effect to the foregoing, the model rules refer to the '9 Year Rule' applying to governing body members who are standing for re-election after having been a member of the governing body "for a continuous period in excess of nine years". However, in our view, the regulatory framework envisages these arrangements applying to governing body members who have served for a "period of nine years or more", otherwise the first time the clause would apply to someone who had served for a period in excess of nine years, would be when that person was standing for re-election after twelve years (assuming that members serve and are re-elected on a rolling three-yearly basis).

We have discussed this point with the SFHA and the Regulator, and it has been confirmed that this point will be highlighted in guidance which is to be issued by the SFHA on adopting the 2013 model.

RSL Companies

While this briefing note focuses on those RSLs who are registered as IPSs, the key provisions of the regulatory framework will be equally applicable to RSLs which are incorporated as companies, which means that amendments to a company's articles of association will also be required.

Get in touch

If any RSLs need assistance in implementing changes to their constitutional arrangements to reflect the foregoing points, including the development of internal policies on matters such as the monitoring and assessment of governing body members and their effectiveness, or in relation to payments and benefits, then we are happy to help.

Please contact Derek Hogg, Partner, Public Sector & Housing at Harper Macleod LLP, on 0141 227 9297 or by email at [email protected].