The increasing complexity of the operating environment for housing associations has resulted in innovative new ways of working, with group structures evolving, and more joint ventures being undertaken.

Why are group structures and joint ventures on the increase?

Group structures are occurring more with the introduction of ‘for-profit’ registered providers and the potential for ‘for-profit’ organisations being the parent in a group structure.

The development of a variety of joint venture (JV) mechanisms continues to grow, with a variety of different forms of JV structures available. 

Group structures

Housing association group structures come in all shapes and sizes. Some are relatively simple, some complex. With the changes happening in the housing sector it is becoming apparent that group structures are also evolving, particularly with the introduction of ‘for-profit’ registered providers and the potential ‘for-profit’ organisations being the parent in a group structure.

The role of the regulator

Through the regulatory framework the Regulator of Social Housing (RSH) remains very clear that social housing assets should not be put at undue risk. For-profit registered providers are being asked to effectively ring-fence their social housing businesses from other activities.

In circumstances where a registered provider is the parent organisation which includes other registered providers it is the RSH’s expectation that the parent organisation assists and supports their subsidiaries to comply with the regulatory requirements.

Likewise, if a parent organisation is not a registered provider but has registered provider subsidiaries it is expected that the parent organisation should support and assist the subsidiaries meet the regulatory framework and standards. As a registered provider the subsidiary should not be prejudiced by the activities or undue influence of the parent or another part of the group.

All in all there is growing complexity in the governance of group structures which needs to be fully understood and effectively directed by the board of the parent and subsidiary bodies. Board members may face difficult and conflicting challenges as they exercise their individual responsibilities to act independently in the best interests of the specific organisation that appoints them. Where individuals hold board roles on more than one organisation within a group there should be formally documented procedures for dealing with any conflict or potential conflict of interest.

Joint ventures (JVs)

The increasing complexity of the operating environment for housing associations has resulted in innovative new ways of working, including the development of a variety of joint venture (JV) mechanisms.

For example:

  • back-office shared service arrangements may be delivered on a contractual or joint venture basis with another housing association
  • repairs and maintenance contracts are now being delivered where associations have a shareholding in a commercial enterprise
  • some associations are also entering into new build development partnerships with private sector organisations to deliver both market and affordable housing.

The mechanism for delivery can have implications for the governance arrangements of the business and the relevant housing association. The RSH is also interested in these activities, as they are concerned about the potential loss of social housing assets if things go wrong with business transactions.

The term joint venture can describe a range of different commercial arrangements between two or more separate entities. Each party contributes resources to the venture and a new business is created in which the parties collaborate together and share the risks and benefits associated with the venture. A party may provide land, capital, intellectual property, experienced staff, equipment or any other form of asset. Each generally has an expertise or need which is central to the development and success of the new business which they decide to create together. It is also vital that the parties have a ‘shared vision’ about the objectives for the JV. 

It is important to distinguish the formation of a JV entity from purely contractual arrangements, such as contracts for the provision of goods or services or a concession, whereby an association gives a third party the right to provide services in consideration of payment.

A JV involves risk sharing; it is suitable where a jointly owned and managed business offers the best structure for the management and mitigation of risk and realisation of benefits whether they involve asset exploitation, improved services and cost efficiencies or revenue/profit generation.

Joint venture structures

There are a variety of different forms of JV structures available and these include the following:

  • contractual partnering including the Private Finance Initiative (PFI) and concession arrangements with no corporate status
  • non-profit-distributing e.g. company limited by guarantee, public interest companies and registered societies (formerly industrial and provident societies)
  • limited partnership (LP) where partners share directly in profit or losses in the proportion in which they invest their capital. LPs permit the existence of Limited Partner(s) and a general partner, normally with unlimited liability
  • limited liability partnership (LLP) is a form of JV, introduced in 2000. It is a hybrid combining the flexibility of a partnership with the safeguard of limited liability.

There is no simple blueprint for success, or single right way of establishing and structuring joint venture arrangements. The board must be thorough in its approach to understanding the proposals and risks and make the appropriate decisions based upon their informed judgements.

Further information