Inclusion Housing Community Interest Company v Regulator of Social Housing

A regulator’s reasons are adequate if, read in context, they enable the affected person to understand why the principal controversial issues were decided as they were. Prior engagement may inform that assessment.

Under section 92K(5) of the Housing and Regeneration Act 2008, proportionality is an obligation of result. The court must determine compliance, while giving considerable weight to a specialist regulator’s expert judgment. A regulator may find governance and financial-viability standards unmet where long-term liabilities create material risks that cannot be controlled or reliably mitigated, even though the provider is presently solvent.

Inclusion Housing Community Interest Company, a registered provider of specialist supported housing, challenged a regulatory judgment grading it G3 for governance and V3 for financial viability. Its lease-backed model involved long, index-linked leases without break clauses, while its income protections were generally shorter and depended partly on housing-benefit policy and third parties.

The regulator concluded that Inclusion had not shown that foreseeable risks could be controlled or mitigated throughout the leases. Inclusion sought judicial review for inadequate reasons, irrationality, departures from regulatory policy, and disproportionality. The regulator also relied on delay and the remedial restrictions in section 31 of the Senior Courts Act 1981.

1. The claim was dismissed. The regulatory judgment gave adequate reasons. It identified the mismatch between Inclusion’s long-term liabilities and less secure income, the effects disclosed by stress testing, the dependence of ultimate mitigation on renegotiation with third parties, and the added exposure caused by further growth. The reasons had to be read against the extensive prior engagement, during which Inclusion had understood and answered those concerns.

2. The reasons complied with the contextual standard in South Buckinghamshire District Council v Porter (No 2) [2004] 1 WLR 1953. Contemporary internal records could elucidate the published reasons where consistent with them. Later evidence could elucidate an existing reason but could not contradict it or supply a wholly new reason.

3. The regulator’s assessment was rational. Changes to housing-benefit or rent policy and counterparty failure were foreseeable risks rather than merely extreme possibilities. Cash reserves would provide only limited time for renegotiation, whose success depended on counterparties’ commercial decisions. The specialist regulator could rationally conclude that increasing long-term, index-linked liabilities without break clauses compounded the risk and justified G3/V3 gradings. The V2 characteristics in its policy were illustrative; the distinction between V2 and V3 required a qualitative judgment about whether the concerns were serious.

4. The governance conclusion was also lawful. A provider judged to have assumed excessive risk may lack the effective risk-management framework required by the governance standard, even without a separate defect in board structure or process. The regulator had not departed from its policy on managed risk or acted irrationally by treating materially different providers differently.

5. Section 92K(5) of the Housing and Regeneration Act 2008 imposed an obligation of result. The court therefore had to determine whether the regulator acted, so far as possible, proportionately. Considerable weight was nevertheless due to its specialist assessment. The grading neither prevented Inclusion from trading nor directly controlled its possessions. It publicly identified serious concerns and initiated engagement towards compliance. It was proportionate.

6. The internal review produced a separate challengeable decision, so the claim was in time. Relief would not have been refused for detriment to good administration. A further allegation based on the statutory objective of supporting social-housing provision was not pleaded and could not fairly be introduced at the hearing.

• High Court (Administrative Court): Permission to apply for judicial review was granted by Sir Wyn Williams on 8 August 2019. The substantive claim was subsequently dismissed in [2020] EWHC 346 (Admin).