For-profit provider found to have breached regulator’s Governance and Financial Viability Standard

The regulatory judgement is the first published assessment of the provider by the RSH.

Its judgement concluded that there are “issues of serious regulatory concern” at the housing provider. 

It found that the arrangements Heylo RP has entered into “have resulted in it being unable to provide assurance” that it meets the requirements of the Governance and Financial Viability Standard to ensure that social housing assets are not being put at undue risk.

Heylo RP has nominal ownership of properties under long leases with connected companies – ‘investment pods’  or investment partners – which secure funding from debt investors and grants. 

However, the turnover from properties let by Heylo RP is received as income by the investment pods. Its year-end turnover in September 2021 was £16.8m.

Heylo RP relies on arrangements with its parent to fund its operations, while the investment pods have the ability to require it to surrender its leases in short order to protect their lender interest. 

The judgement said: “The regulator lacks assurance that Heylo RP understood and managed the likely impact that arrangements with its parent, investment pods and managing agent would have on its current and future business and regulatory compliance. 

“Further, the regulator lacks assurance that Heylo RP has taken adequate steps to fully identify risks and combinations of risks across a range of scenarios through detailed and robust stress-testing and identify mitigating actions available to Heylo RP to protect its social housing.”

It said a deterioration of financial position in the group company could trigger a requirement for Heylo to surrender its leases. 

“While Heylo RP may be able to take further steps to proactively monitor risks relating to the financial position of other group members, its ability to enact mitigations if risks in a group company are identified is limited because it requires the agreement of other group companies and consideration of their interests and priorities,” the regulator concluded. 

It said that within Heylo RP’s current business model, it has “effectively ceded control” of its social housing assets to the investment pods, “leaving their future susceptible to decisions driven by the interests of connected group companies”. 

“These arrangements pose a significant risk to Heylo RP’s ability to protect its social housing assets and ensure its long-term viability,” the regulator concluded. 

Following its in-depth assessment (IDA) of the for-profit, the RSH identified “significant weaknesses” in Heylo’s governance. 

This included inadequate oversight of the services provided by the managing agent; weak arrangements for Heylo RP to be consulted on investment decisions; and a lack of assurance that clear roles, responsibilities and accountabilities had been established for Heylo RP’s board. 

It also found a lack of appropriate terms of reference, standing orders or a framework of delegation, and a failure to review compliance with its chosen code of governance since its inception in 2017. 

In response to being put on the regulator’s gradings under review list in July, Heylo commissioned an independent review of its governance arrangements and compliance with its code of governance.

It made some changes in its arrangements within the Heylo Group, which are intended to improve the support from its parent and strengthen its role in management of the properties and in investment decisions. 

Heylo RP has also made new appointments to its board. 

The regulator said it will continue to engage with Heylo RP to ensure that it addresses all the issues identified.

Harold Brown, senior assistant director for investigation and enforcement at the RSH, said: “It is essential that registered providers do not enter into arrangements that compromise their ability to meet regulatory obligations. 

“It is also vital that they have sufficient control over the social homes they provide to ensure their long-term viability. Heylo RP has failed to do this.”

A spokesperson for Heylo said it is the first for-profit RP to go through the IDA process and will “continue to work collaboratively” with the regulator in order to ensure its governance and financial viability requirements are met.  

In response to the judgement, Heylo Housing’s chief executive Andrew Geczy said the provider is disappointed with the gradings, “given the considerable work we have undertaken with the regulator to explain Heylo’s robust structure”.

He added: “We expect to make the successful case for governance and financial viability following further constructive collaboration with the regulator.”

He said that through the IDA process, “it became clear” that the way that the for-profit “fits within the unique Heylo structure was an unfamiliar one to the regulator”. 

“In their assessment of viability in this judgement, the regulator’s scope was limited to Heylo RP – the regulator did not review or consider the viability of the investment partners or the Heylo Group as a whole. 

“Investment partners are audited by Homes England, are the recipients of affordable housing grant and are not regulated by the RSH,” Mr Geczy said. 

He said that despite not being initially reviewed by the regulator after it was founded in 2017, “Heylo and its group of institutional investors are confident that it has been and remains a sound, well-run business, with a strong financial standing over that time”. 

Mr Geczy added: “Our homes are safe and well maintained, and we are proud of our high customer satisfaction levels. 

“Our strong business model has been evidenced by our ability to attract significant capital investment to the sector with minimal risk, and more importantly, to allow thousands of families to buy an affordable home. 

“We currently have £400m of capital to deploy to help more families own their own homes.”

In a statement, Heylo said it feels that if the regulator had been able to consider the wider group, “a compliant result for viability would have been the outcome”.

It added that “in Heylo’s assessment of the regulatory judgement, the regulator’s bias is towards a structure where the registered provider is the grant recipient, controls and owns the social housing assets direct or has direct control over the investment partners (investment pods). Heylo Housing Group has a robust structure based on a long-term and resilient, low-risk investment model.”