savills.com

Risk and regulation – protecting social

housing

Register of assets (and liabilities)

- meeting the new data requirements

Mervyn Jones

26th February 2015

Why the focus on asset and liability registers?

Why have an asset and liabilities register?

Topics

What components comprise a comprehensive register?

What goes in each component of the register?

The value of a good register

The link to business plan stress testing

Strategy and governance links

The role of the Board

Why the focus on asset and liability registers?

Cosmopolitan was a near disaster for the sector

Basics were not there to protect social housing assets

Lack of transparency in both governance and

management

“Exotic” financial liabilities neither understood nor

disclosed – is it “off balance sheet”?

Disproportionate impact on effecting a rescue

Are your assets oven-ready for sale or charging?

Recognition that Cosmopolitan is not unique

Why have a property asset register?

“What do we own and what are our obligations

arising from what we own?”

Housing associations are fundamentally

property investment and management

businesses

Property = the business foundation

Charitable / social objectives can’t be met

without them

Expectation to optimise the Return on

Investment

Basic good business management

Why have a liabilities register?

“What have we committed to do and when have

we committed to doing it?”

Development contracts and liabilities are well

known and understood

Leasing deals for non-standard accommodation

can be complex and contain long term financial

obligations / penalties

Commercial contracts often contain onerous

penalties for under-performance

Subsidiaries and joint ventures cannot always

be ring-fenced

Example of Asset Register at work

Demand for security or cash to

cover hedging instruments

Bond rates plummet

45 RPs face a demand for security

EG ASRA-LHA

Valuers burn the midnight oil

What if...........

What components comprise a comprehensive assets

and liabilities register?

Four key components:

A register of all freehold and leasehold land and

property assets – the big one!

A register of all development contracts,

obligations and penalties

A register of all major commercial contracts,

obligations and penalties

A register of all commercial subsidiary / joint

venture agreements and commitments

What goes in an asset register?

Primarily a repository for legal information and

documentation

Comprises all property assets – residential and non-

residential, f/hold and l/hold, land

Title, restrictions / reversions, planning information

Land Registry primary source for validation of legal

data, internal (development) archives for other

documentation

Digital storage of deeds, plans, leases, S106 /

nomination agreements

Static / quasi-static, long term assets

What goes in an asset register?

The most boring Appendix ever..

And the most ignored.....

Asset register: Basic data requirements

Land Registry Title number

Address, Postcode, Local Authority and NLPG

reference

Property type and number of bedrooms

Ownership tenure and date of ownership / lease

commencement

Lease information (term / landlord obligations /

restrictive terms / end of term provisions)

Planning information (S106 agreement /

nominations agreement / restrictions on title)

KISS

Good Examples

30 years of private finance

25 years of valuation

Nearly 10 years of stock

rationalisation

Haven’t found one yet!

Data is spread over several

systems

Bad Examples

The missing statue

S106 obligation....

Holding up a £60m

transaction

Association listed 50 units

on their data-base as

“Unreal Properties”

OAP Bungalows that were

actually +55 3 storey Flats

Bad Examples

Oh dear:

we don’t actually own the property,

we’re the managing agent

we don’t actually own the land that its

built on....

we never got round to signing the

lease....

the lease has only 15 years to run......

the development department has

disappeared and we can’t find any of

the sign offs....

Bad Examples

Oh dear, we need the church’s

permission to sell...

And they need a new roof

And we have to house aged widows of

the parish...

There aren’t any......

What goes in a development contracts register?

Repository for all live contracts / documentation associated

with development activity

Majority of commitments, risks and obligations are “known

knowns”

Comparatively easy to monitor –

Standard / recurring activity

Familiar language / terminology

Relatively short term contracts

Information readily available from existing governance /

reporting structures

Penalties and termination provisions understood by sector

and partners

Development contracts: Basic data requirements

Same basic property data requirements as

asset register

Scheme details (location, number / type of

units, tenure mix)

Delivery / handover profiles, latent defects

clauses, overage clauses

Payment schedules, performance thresholds,

trigger events, penalty clauses

Planning information (S106 agreement /

nominations agreement / restrictions on title)

If leasehold – term / landlord obligations /

restrictive covenants / end of term provisions

What goes in a commercial contracts register?

All live major commercial contracts – management / service

agreements, SP contracts, PFI contracts, student / NHS /

commercial leasing arrangements

Commitments, risks and obligations not necessarily known or

familiar

Much more difficult to monitor –

Non-standard and/or low volume activity

Unfamiliar language / terminology / provisions / performance

penalties

Medium to long term liabilities and obligations

Information / documentation not readily available from

existing governance / reporting structures

Performance / termination provisions more onerous

Commercial contracts: Basic data requirements

Primary contract details (client(s) / partner(s) /

objectives)

Input / output specifications / requirements

Financial commitments, payment schedules, non-

payment penalties

Service performance thresholds, trigger events,

enforcement provisions, penalty clauses

End of contract term provisions, transfer / handover

obligations

Dispute resolution procedures, contractor

replacement / termination provisions

What goes in a subsidiary / JV register?

Repository for all commercial subsidiary and joint venture legal

agreements

May be appropriate to include charitable subsidiaries if

obligations are material

Commitments, risks and obligations not necessarily known or

familiar

Much more difficult to monitor –

Sits outside standard governance / management / reporting

structures

Control / influence not necessarily within direct control

Unfamiliar language / terminology / provisions

Non-standard and/or low volume activity

Subsidiaries / JVs: Basic data requirements

Legal status of venture, nature of shareholding

interest,

control mechanism(s), form of investment

(equity / debt)

Performance / delivery / return thresholds

Future working capital / investment

commitments, review options

Governance provisions, partner performance

review, withdrawal options / provisions

Trigger events, enforcement provisions, dispute

resolution procedures, termination provisions

The value of a good register

Enhance credit rating, speed-up

securitisation process, maintain liquidity

Cohesive approach to short / medium /

long term investment and re-investment

Allows board to understand composite

risk exposure of business as a whole

Due diligence – at a point of change

And if in distress...

Plus – evidence of assurance to

stakeholders

The link to Business Plan Stress Testing

‘The stress test is not a forecast. It is not a set of events that is expected, or

likely, to materialise. Rather, it is a coherent ‘tail-risk’ scenario that is

designed specifically to assess the resilience of UK banks.’

Business plan stress testing

Multi-variate analysis – the “perfect

storm”

Risk, recourse, and business

breaking points – resilience /

robustness

Identifies unutilised capacity,

business boundaries

Liquidity, security, discretionary spend

Live and integrated

Plus – evidence of assurance to

stakeholders

Strategy and governance linkages

Finance strategy

Investment strategy

Treasury strategy

Risk strategy

Business plan stress testing - project

thresholds / liquidity thresholds / covenant

thresholds / exit strategies

Pivotal role of Company Secretary in

maintaining awareness of these links

The role of the Board

Implementation and maintenance of a comprehensive Register of

Assets and Liabilities allows the Board to demonstrate that:

It understands the liabilities / obligations /

There is capacity / liquidity to maintain these commitments over

time

The risk of these commitments is understood

It understands the fundamental link between the Assets and

Liabilities Register and Business Plan Stress Testing

Risk management and mitigation is at the forefront of the

governance agenda

How to gain assurance?

Boards get an annual management letter

from the Auditors

Businesses are compelled to hold a Register

of Fixed Assets by law – but is it the same

thing?

External due diligence is carried out every

time landlords buy a property or put it in

charge.

So why do we discard this information????

Demonstrating an iron grip

The buck stops with the Group Board

Executives and non-executives have joint

responsibility / accountability

Skills based boards built on business scope and

activity

Balancing ambition with capacity

Control must increase with greater risk / complexity

/ diversity

Subsidiary / JV appointments and primary fiduciary

duty

See Savills publication – Challenging Governance

Are we standing on thin ice.....?

savills.com

Questions

Mervyn Jones

Head of Housing Consultancy

mejones@savills.com

0207 409 5992

07973 294 560