Connaught collapse - what next?

The appointment of an administrator over the Connaught Group is expected any day. Many housing associations will have employed Connaught to carry out maintenance services under the JCT measured term contract or similar.  These contracts contain specific provisions for the steps to follow if an administrator is appointed over the contractor (or some other form of insolvency).

When that happens, the housing association as employer has a right to terminate the contract and often it is advisable to do so as soon as possible, although the impact on any security (particularly any bonds) will need to be analysed in advance.  It is then in a position to appoint a replacement contractor to continue or complete the work or to put direct payment arrangements in place with key sub-contractors.

Under a JCT, from the date the administrator is appointed the housing association ceases to be liable to make progress payments to the contractor.  It must then within three months make a valuation to determine what final amounts (if any) are due to the insolvent contractor.  The valuation will show the difference between the value of work completed by the contractor up to the date of administration (not previously paid for) and the loss the housing association incurs because of the contractor's insolvency.  If its loss is higher there is no further payment to the contractor but the housing association as an unsecured creditor in the insolvency can expect little or no recovery.

The largest element of loss will be the cost of a replacement contractor to complete the work covered by the work order.  In practice the process of valuing work and the housing association's  loss can take significantly longer than three months and disputes often arise between employers and administrators as to the amounts finally payable.  Careful recording of the additional cost and anticipated additional cost of completion work by replacement contractors will be essential when dealing with the potential claims from the original contractor's insolvency practitioner and in recovering under guarantees and bonds, particularly as the position of bondsmen has hardened significantly in the last 12 months in light of the economic downturn.

Where associations have engaged an insolvent contractor such as Connaught under a framework agreement, it should also be checked to ensure that in the event of the insolvency of one of the framework contractors the work can be taken over by one of the others. This is again something that should be investigated at the earliest opportunity, so as to ensure as good a continuity of works/services as possible.

To find out more, please contact Peter Jansen

Government reassesses lifetime tenancies

At the beginning of August, the Prime Minister, David Cameron, announced plans for the review of security of tenure in respect of social housing.

Under the Housing Acts of 1985 and 1988, social housing tenants currently benefit from security of tenure and in some cases are able to pass on the benefit of that security to members of their families. Social housing properties can therefore become tied up for very long periods.

The proposals referred to are yet to be fully detailed. Mention has been made of the creation of fixed term tenancies, for periods possibly as short as five years, which would apply to tenancies granted in the future to tenants of social housing. If a tenant no longer met the criteria for social housing need, then the dwelling would be reallocated at the end of the term.

The need to deal with lengthening waiting lists for social housing has been cited as the rationale for change to the current system. The move away from long term security of tenure would be intended to allow greater flexibility in the allocation of existing social housing stock.

Industry commentators have expressed concern as to how housing stock will be reallocated under any revised system. Potential problems include the possibility of tenants being de-incentivised to improve their circumstances for fear that they will lose their tenancy. There is also the possibility for an increase in litigation between social housing tenants and councils or housing associations in the implementation of the reallocation criteria and, in general terms, the socio-political difficulties which can be encountered when there is any form of allocation of resources by means testing.

The debate will continue as the details of the proposals emerge, but a movement away from long term security of tenure would mark one of the most important changes in the provision of social housing in the last 25 years.

To find out more, please contact Conor Geoghegan

Market opportunities

As the demand for care homes continues to increase, we are seeing investors and developers return to this sector, especially now that funding for such schemes is again more widely available.  As in the past with such developments, this continues to present opportunities for housing associations to develop new social housing by becoming involved with and/or 'piggybacking' onto such schemes. 

Equally, with higher education establishments looking to accommodate ever greater numbers of students, the private sector is again looking to expand in this market, which is creating further social housing opportunities.

To find out more, please contact Peter Massey

Mortgage Rescue Scheme - September update

With the future of the scheme now under review, Penningtons will be keeping you up to date on the latest developments in this area via a special feature incorporated in our monthly social housing update. This month we look at cases where there will be a shortfall following a rescue.

Click here to view our Mortgage Rescue Scheme update.

To find out more, please contact Graham Phillips