Community benefit societies and social housing

Proposed reforms to community benefit societies may have far-reaching consequences for the social housing sector, writes Victoria Jardine.

In mid-September 2024, the Law Commission published the findings of its ongoing review of the laws and regulations that govern cooperative and community benefit societies. 

Claiming to bring this area of constitutional law into the 21st century, the changes that the Law Commission proposes are potentially far-reaching for the social housing sector in England and Wales. 

Many registered providers (RPs) in England and registered social landlords (RSLs) in Wales have purposefully adopted community benefit society (CBS) status. A CBS exists for ‘the benefit of the community’ (akin to ‘for the public benefit’ in many respects) and can be a charity, but is currently exempt from registration with the Charity Commission. This relieves CBSs of the burden of triple-regulation (alongside the Financial Conduct Authority and the Regulator of Social Housing or the Welsh Government) and exempts them from compliance with some parts of charity law.  

However, among the Law Commission's proposals, set out at length in its detailed report (229 pages) and summarised in its speed-read (a more accessible 20 pages) are ones that would:

Put into law that CBSs exist for the sole benefit of the community, that membership is voluntary and crucially, that it is ‘open to all’ with ‘one member one vote’

Many CBSs in the housing sector have moved purposefully away from open membership (recognising it is often not an effective way of engaging with their wider user group). In some cases, their constitutions still enshrine weighted voting rights, often to ensure representative groups retain a voice at member level. 

Changing these principles could be seen as a retrograde step and it could be argued, an unnecessary distraction, given that in social housing, landlords are being encouraged - nee required, in England - by their regulators to prioritise more effective methods of engagement with tenants (who may not be, and may not want to be, members of the CBS). Some CBSs have successfully adopted the ‘Community Gateway’ principles and encourage wide membership drawn from their communities. However, typically these are set up from the get-go to accommodate and get the best out of this structure. 

Forcibly requiring all CBSs - many of whom will lack the capacity and resources - to implement wide open membership as a condition of continued CBS status (as the consultation suggests) could be challenging to some parts of the sector. This would be a steep and potentially risky learning curve to put on the whole sector.

Require exempt charities (CBSs with charitable objects and activities) to register with the Charity Commission

The justification in the report for doing this is that it creates a level playing field with the registered charity sector and promotes transparency and accountability for complying with charity laws and regulations. In fact, since 2011 there has been legislative power to require exempt charities to register, but this has not been implemented, perhaps in unspoken recognition of the fact that many of these exempt charities are social housing and are already subject to the strictures of an active regulator (in England and Wales). 

Exempt charities are not subject to Charity Commission oversight and whilst compliance with its guidance is seen as expected good practice, there are aspects of charity law and regulation which do not catch them. For example, registered charities are less likely to pay their trustees (or where they do, it is subject to a special business case and rarely enables all trustees to be remunerated). Exempt charities that are RPs or RSLs have wider discretion to remunerate their trustees (board members), subject to having the power to do so in their constitution (rules). 

Requiring all CBSs that are exempt charities to register with the Charity Commission would potentially change how they currently do things which could have far-reaching consequences. Alongside this is the impact on the Charity Commission itself, which would have to register, potentially at speed, hundreds of exempt charities, many of which are extremely large by charity standards, and many more of which are very small (both bringing their resourcing challenges for the Charity Commission). 

The report recommends that there would need to be a ‘framework for collaboration’ between overlapping regulators. Interestingly, there used to be a framework for collaboration between the then-social housing regulator (in England), the Charity Commission and HMRC. It fell away many years ago, though, and was never refreshed. 

Open the door very slightly to equity investment into CBSs

At present, there are ways that an investor can invest in the shares of a CBS but these are very limited and do not provide a viable alternative to loan funding to meet the finance needs of most housing providers of any size. 

Whilst the Law Commission doesn't propose any changes, it has invited responses on whether it should consider ‘a new type of share’ for ‘non-user investors’. In England, the status of ‘for-profit’ RPs was established as an alternative route to encourage equity funding into the sector (amongst other things), and extensive efforts have been made to address the negative connotations often associated with the ‘p’ word (likening dividend payments to investors to interest payments on loan funding). 

Allowing CBSs to have a species of ‘institutional investment’ would be a radical way of enabling the not-for-profit part of the sector to access different sources of funding, which could be transformative.

Make officers (board members/trustees) of CBSs subject to the Companies Act duties and responsibilities which only apply to company directors at the moment. 

This would potentially replace the current common law and fiduciary duties which overlap with the codified statutory duties.

There are a raft of other changes proposed including:

• to the way the Financial Conduct Authority manages CBSs;
• the way that it would keep a live/current list of officers (board members) as Companies House does for companies; and 
• to the way that statutory; merger routes (Amalgamation under s109 of the Co-operative and Community Benefit Societies Act 2014 and Transfers of Engagements under s110 of the same Act) take effect, including making these easier between a CBS and a company.

No doubt there is much more hidden in the details of the Law Commission's full report. We will be unpacking this for ourselves over the coming weeks. 

In the meantime, CBSs of all types, especially in the housing sector, should be paying heed and considering whether to respond to the consultation, which closes on 10 December 2024. Details can be found on the Law Commission's website including an online questionnaire (responses will also be accepted by post or email).

Victoria Jardine is a partner at Anthony Collins.