Statutory intervention at Fairfield Housing Association

About this Report

1.

This report sets out the reasons for our statutory intervention in Fairfield Housing Co-Operative, subsequently Fairfield Housing Association (‘Fairfield’) and the outcome of that intervention.

2.

We began engaging with Fairfield at the start of 2018. Our statutory intervention began in November 2018 and ended in December 2021 after a transfer of engagements from Fairfield to Kingdom Housing Association (‘Kingdom’).

3.

Fairfield’s homes, other assets and certain legal liabilities transferred to Kingdom on 1 December 2021. Fairfield was removed from the Register of Social Landlords (‘the Register’) on 29 March 2022.

About Fairfield

4.

Fairfield was registered as a social landlord in 1988. It owned and managed 514 houses and operated in the Perth and Kinross Council area. Fairfield was originally a fully mutual co-operative. It converted to a housing association in 2020. It was also registered as a Scottish charity. Fairfield employed around 12 people.  

5.

Fairfield’s turnover for the eight month period to 1 December 2021 was £1.8m. Its debt per unit was £12,900.  The last full year turnover to 31 March 2021 was £2.5m.

Our regulatory requirements

6.

Our current regulatory requirements are set out in our Regulatory Framework. Prior to February 2019 our Regulatory Framework contained six Regulatory Standards of Governance and Financial Management (‘the Regulatory Standards’) RSLs were required to comply with:

1. the governing body leads and directs the RSL to achieve good outcomes for its tenants and other service users.
2. the RSL is open about and accountable for what it does. It understands and takes account of the needs and priorities of its tenants, service users and stakeholders. And its primary focus is the sustainable achievement of these priorities.
3. the RSL manages its resources to ensure its financial well-being and economic effectiveness.
4. the governing body bases its decisions on good quality information and advice and identifies and mitigates risks to the organisation’s purpose.
5. the RSL conducts its affairs with honesty and integrity.
6. the governing body and senior officers have the skills and knowledge they need to be effective.

7.

The Regulatory Framework also set out the levels of engagement we may have had with individual RSLs; low, medium or high. In March 2018, following our annual risk assessment, we had medium engagement with Fairfield. This meant that the information it had submitted to us indicated we needed further assurance than we could obtain from information returns alone. We also required Fairfield to submit the standard annual regulatory returns and alert us to notifiable events.

8.

We have published statutory guidance on notifiable events. These are events that RSLs must tell us about. Prior to February 2019 our notifiable events guidance explained that these are events that may seriously put at risk:

• tenants’ and other service users’ interests or safety;
• the RSL’s financial health, public investment, or lenders’ confidence; and/or
• the good governance and reputation of an individual RSL or the RSL sector.

9.

Governing bodies must regularly assess whether there is any action they require to take to ensure ongoing compliance with current Regulatory Standards and requirements. We expect RSLs’ Annual Assurance Statement (‘AAS’) processes to incorporate this assessment and we may seek assurance about this during our engagement.

10.

Governing bodies should have regard to the matters highlighted in this report when assessing compliance and incorporate this into their AAS processes.

Our statutory intervention in Fairfield

Our initial engagement with Fairfield

11.

We published a Regulation Plan for Fairfield on 29 March 2018 as we needed further assurance about its strategy to support and deliver its development plans that would increase its number of homes by around 40%.

12.

In May 2018, we received allegations from a third party of potentially serious misconduct and mismanagement at Fairfield indicating a potential serious failure to comply with our Regulatory Standards. On 30 May 2018, we met with Fairfield’s governing body (the "Governing Body") to discuss the allegations. The Governing Body agreed to set up an investigation sub-committee and to commission an independent investigation into these allegations. We highlighted the requirement to ensure that the investigation was appropriately managed and we sought assurances from the Governing Body that it would address any conflicts of interest and maintain confidentiality. Following our meeting, we were advised that confidentiality may have been breached which gave us concerns that the investigation and conflicts of interest were not being appropriately managed.

13.

We engaged with Fairfield regarding our concerns relating to the alleged breach of confidentiality and possible conflict of interest. Fairfield recognised that it needed additional external support and expertise to support it to effectively address these issues. Fairfield made the decision to co-opt additional expertise to its Governing Body to help oversee the independent investigation. It co-opted two people with extensive housing experience to the Governing Body in July 2018: Norman Fitzpatrick (Deputy Director, New Gorbals Housing Association) and Hazel Young (Managing Director, Dunedin Canmore Housing Association). Both co-optees joined the investigation sub-committee which commissioned an independent investigation and sought independent legal advice.

14.

Fairfield also informed us that it was unable to meet our requirement to submit a business plan in the necessary timescale. Fairfield instead submitted an independent business planning review, in June 2018. This further heightened our concerns about Fairfield’s ability to set and oversee delivery of its strategic objectives.

15.

In November 2018 we received the findings of the investigation into the allegations of potentially serious misconduct and mismanagement The investigation highlighted a number of areas of serious concern including:

• the inappropriate receipt of payments and benefits;
• systemic failures of governance amounting to mismanagement;
• failure to establish and oversee an effective system of internal controls;
• failure to exercise the necessary controls to allow it to determine whether it was complying with the Regulatory Standards;
• widespread failures to comply with Fairfield’s policies, procedures, Financial Regulations and delegated authorities for spending;
• poor procurement practices;
• failures to manage conflicts of interest and to uphold the standards of conduct and good governance expected of Registered Social Landlords; and
• the range of failures contributed to the potential inappropriate use of Fairfield’s funds and resources.

16.

The investigation also upheld that there had been a breach of confidentiality whereby an individual was advised of the investigation at an earlier stage than they should have been.

Why we intervened

17.

The 2010 Act requires us to make regulatory interventions in relation to an RSL’s financial health, governance or performance of housing activities if we judge that it is appropriate to do so in order to protect the interests of tenants and other service users and provided the relevant statutory tests are met. We set out more detail on when we take action where we need to in our Regulatory Framework.

18.

We used the findings in fact from the investigation together with Fairfield’s business planning information to assess Fairfield’s compliance with the Regulatory Standards. Our assessment was that Fairfield was not complying with the Regulatory Standards and that there were serious and widespread compliance failures across all six standards. We also concluded that Fairfield did not have the management and leadership capacity to address the serious issues it was now facing and that this presented a serious risk to tenants and other service users.

19.

We met with the Governing Body and advised of our intention to use our statutory powers of intervention under the Housing (Scotland) Act 2010 (‘the 2010 Act’). In accordance with the 2010 Act, we provided the Governing Body with an opportunity to make representations in response to our intentions. The Governing Body accepted that it needed expert support to act on the investigation findings and recommendations and to achieve compliance with the Regulatory Standards.

20.

In November 2018 we decided that it was appropriate to use our powers of intervention because we considered that the serious failures in Fairfield’s governance and financial management posed an immediate risk to the interests of its tenants and to the reputation of RSLs.

We decided to:

• appoint a statutory manager under section 58 of the 2010 Act; and
• appoint seven members to the Governing Body under section 65 of the 2010 Act. Both these measures were for a period of six months.

21.

On 28 November 2018 Mags Lightbody was appointed as a statutory manager under section 58 of the 2010 Act. Her remit was to:

• address the serious and urgent risks to Fairfield’s tenants and other service users’ interests arising from the independent investigations by supporting the Governing Body to act on the findings and recommendations. To provide oversight of any resultant actions to ensure all matters are fully resolved;
• carry out further inquiries into Fairfield’s compliance with the Regulatory Standards and potential breaches of the Code of Conduct for Governing Body members;
• provide strategic direction and prioritise actions to ensure that Fairfield’s financial and governance affairs are managed to an appropriate standard and in compliance with the Regulatory Standards;
• manage Fairfield’s relationships with its tenants and other stakeholders, including its lenders; and
• support the Governing Body to carry out a review to establish the best strategic solutions for Fairfield’s tenants and other service users including its plans for future growth.

22.

The statutory appointees to the Governing Body under section 65 of the 2010 Act were:

• Bob MacDougall (former Chairperson, Muirhouse Housing Association), appointed December 2018 to December 2021 and was elected as Chairperson at Fairfield;
• Norman Fitzpatrick (Deputy Director, New Gorbals Housing Association), appointed December 2018 to September 2020;
• Hazel Young (Managing Director, Dunedin Canmore Housing Association), appointed December 2018 to December 2021;
• Ian McLean (Chief Executive, Bridgewater Housing Association), appointed December 2018 to December 2021;
• John Davidson (Director of Customer Services, Cairn Housing Association), appointed December 2018 to September 2020;
• Margaret Vass (Chairperson, Rural Stirling Housing Association), appointed December 2018 to December 2021; and
• Stuart Dow (Director, Hillcrest Enterprises), appointed December 2018 to September 2020.

23.

The statutory appointees’ remit was to:

• address the serious and urgent risks to Fairfield’s tenants and other service users’ interests arising from the independent investigations by supporting the Governing Body to act on the findings and recommendations. To ensure that all matters are fully resolved; and
• support the Governing Body to ensure that it complies with the Regulatory Standards.

24.

In response to the findings of the investigation report, Fairfield notified us that it would further investigate alleged code of conduct breaches. This resulted in three members of the Governing Body taking a leave of absence in December 2018 whilst the allegations were investigated. Separately, the Statutory Manager received new allegations and a further two Governing Body members took a leave of absence whilst these were investigated.

25.

Fairfield worked co-operatively with us and the statutory appointees and made good progress in addressing the majority of the recommendations from the independent investigation into serious allegations of misconduct and mismanagement. It also concluded the further investigations into alleged breaches of the code of conduct. Due to Fairfield’s non-compliance with Regulatory Standard 3 we required additional assurance around its long term financial planning and its financial control framework.

26.

The Governing Body, supported by the statutory appointees, agreed a substantial governance and financial management improvement plan and progressed a number of priority actions. In January 2019 Fairfield also commissioned an independent validation of its Annual Return on the Charter after identifying that information it had previously provided to the SHR was inaccurate. Additionally, Fairfield identified further weaknesses in its approach to procurement, data management and asset management and worked to address these as part of its improvement plans.

27.

The review of Fairfield’s Annual Return on the Charter and preparatory work for a compliant and robust Business Plan identified serious concerns and weaknesses including:

• gas safety procurement and procedures were inadequate and a number of non-compliant properties were identified. Urgent gas safety checks were carried out and certificates obtained for these properties. The Governing Body decided to review its approach to gas safety in response to these findings and to make urgent improvements;
• there were failings in evidence and recording requirements to demonstrate other property and customer safety compliance. The Governing Body appointed a suitably skilled consultant to carry out an asset management review and put in place adequate measures and procedures;
• SHQS returns were inaccurate, with little or no evidential basis for compliance reporting. The Governing Body commissioned an independent stock condition survey; and
• arrears figures had been systematically under-reported to the Governing Body and the SHR over several years. The Governing Body decided its arrears policy, procedures, monitoring and performance reporting methods required improvement.

28.

The Governing Body also carried out a review of legal compliance and good practice which identified:

• Fairfield’s procurement practice was poor and had led to contracting arrangements that were not compliant with Scottish Government requirement and others with inherent weaknesses. These included rolling contracts with external auditors, accountants and solicitors, enduring between 10-18 years;
• internal audit had been intermittent and reviews were limited in range and scope;
• the failure of Fairfield to properly understand its roles and obligations as an employer; and
• Fairfield had failed to register with the Office of the Information Commissioner. This was remedied immediately, while a review of wider GDPR compliance generated some areas for action or improvement. The Governing Body approved an updated Privacy Policy which ensured full compliance in April 2019.

29.

An interim Chief Executive was appointed in December 2018 and the Chief Executive left the organisation in April 2019. In January 2019, two Governing Body members resigned. A further four Governing Body members resigned between January and June 2019.  

30.

In May and June 2019, Fairfield undertook a review to establish the best strategic and sustainable solutions for its tenants and other service users (‘strategic review’) in response to the significant challenges Fairfield was facing. Having reviewed our statutory intervention in July 2019 we decided to extend the appointments of statutory manager and Governing Body appointees until December 2019 to further support Fairfield to address the serious and urgent risks to its tenants and other service users’ interests.

Julia Fitzpatrick was appointed as Statutory Manager and we updated the statutory manager’s remit to:

• continue to address the serious and urgent risks to Fairfield’s tenants and other service users’ interests arising from the failure to comply with Regulatory Standards by supporting the governing body as it works towards compliance;
• carry out further inquiries into Fairfield’s compliance with Regulatory Standards as necessary;
• provide oversight of any resultant actions to ensure all matters are fully resolved;
• provide strategic direction and implement the governance and financial management action plan to ensure that Fairfield’s affairs are managed to an appropriate standard and in compliance with the Regulatory Standards;
• manage Fairfield’s relationship with its tenants and other stakeholders, including its lenders;
• support the Governing Body to carry out a review to establish the best strategic solutions for Fairfield’s tenants and other service users; and
• establish whether Fairfield is able to sustain and build on the improvements made to comply with the Regulatory Standards without external support.

We updated the statutory appointees’ remit to:

• continue to address the serious and urgent risks to Fairfield’s tenants and other service users’ interests arising from the failure to comply with Regulatory Standards;
• support Fairfield to ensure that it complies with Regulatory Standards;
• support Fairfield to carry out a review to establish the best strategic solutions for its tenants and other service users; and
• establish whether Fairfield is able to sustain and build on the improvements made to comply with the Regulatory Standards without external support.

31.

In July 2019, the Governing Body considered its strategic review and agreed to explore a shared services collaborative partnership with Kingdom, building on earlier partnership arrangements. It also decided to consider a constitutional partnership or transfer of engagements in a timeframe of approximately 12-18 months.

32.

Following turnover in the elected Governing Body membership, the strategic review also recognised that the Governing Body would not have the necessary skills and capacity without significant external support. Fairfield therefore decided to review its constitutional arrangements with a view to ensuring access to the diversity of skills and experience needed to govern an RSL facing significant challenges.

33.

Kingdom provided asset management and other services between April 2019 and April 2020, with a full shared services agreement commencing on 1 May 2020. This provided the necessary governance, compliance, financial management and strategic asset management support for Fairfield. Under this arrangement, Kingdom’s Chief Executive acted as Fairfield’s new Senior Officer from 1 May 2020.

34.

By December 2019 and whilst acknowledging the dedication of a small cohort of elected tenant Governing Body members with developing knowledge and skills, Fairfield was almost wholly reliant on the statutory appointees and other external support to maintain effective governance. Recognising this and given the substantial programme of work that remained to make the necessary improvements to comply with the Regulatory Standards, we extended the appointments of the Governing Body appointees until September 2020.

35.

Fairfield continued to implement its plans for improvement including making significant progress in the implementation and transition to the shared services arrangement with Kingdom, despite the impact of the Covid-19 pandemic. In light of this progress which included provisions for the senior officer role, we were satisfied that the remit of the statutory manager had been met and we decided to end the appointment from the end of May 2020. However as Fairfield continued to be almost wholly reliant on the statutory appointees to maintain effective governance, we decided that the statutory appointees to the Governing Body should remain until September 2020 to assist Fairfield in implementing its improvement action plan and to fully address the areas where it was not compliant with regulatory requirements.

36.

Fairfield worked to embed the shared services arrangement with Kingdom and to deliver the remaining actions from its improvement action plan to ensure that it was able to comply with Regulatory Standards. Fairfield developed a timeline to achieve this but the Covid-19 pandemic impacted on its timescales to complete the remaining actions.

37.

In September 2020, Fairfield’s members agreed to change its constitution to convert from a fully mutual co-operative into a registered charitable housing association. This was achieved in November 2020.

38.

In light of the progress of the shared service arrangements with Kingdom as well as the constitutional changes, we decided to reduce the number of statutory appointees on the Governing Body from seven appointees to four. We extended the four appointments to March 2021.

39.

The reduced but continuing level of support from the four appointees remained critical to ensure the Governing Body had the necessary experience, expertise and resilience as it fully embedded the shared services arrangements with Kingdom. The support of the appointees was also necessary to ensure that Fairfield could deliver the necessary actions remaining in its improvement action plan.

Transfer of Fairfield’s homes to Kingdom

40.

In January 2021 and following the implementation of the shared services arrangement with Kingdom, Fairfield and Kingdom decided to carry out a joint strategic options review. Fairfield tenants’ and staff views were considered as part of the exercise following surveys and consultations.

41.

The Boards of Fairfield and Kingdom independently considered the outcomes of the strategic options review and both identified a Transfer of Engagements (ToE) to Kingdom as the best option to address the serious failures that led to our intervention and to protect the interests of Fairfield’s tenants and other service users for the future.

42.

Fairfield and Kingdom developed a detailed business case for the ToE and Fairfield made a separate appointment of a Transfer Advisor to provide the necessary skills and independent advice on the transfer to Kingdom. Fairfield also appointed an Independent Tenant Advisor to support the necessary tenant consultation and ballot.

43.

In March 2021 we further extended the four statutory appointments until January 2022 to provide the necessary expertise and support to Fairfield as it progressed the ToE to Kingdom.

We updated the Governing Body appointees’ remit to:

• continue to address the risks to Fairfield’s tenants and other service users’ interests arising from the failure to comply with Regulatory Standards;
• support Fairfield to ensure that it complies with Regulatory Standards; and
• support Fairfield to deliver the Transfer of Engagements to Kingdom.

44.

In June 2021, the joint ToE Business Case was approved by the Governing Bodies of both Fairfield and Kingdom.

45.

Following a comprehensive consultation programme and an independent ballot of tenants between August and September 2021, 95% of Fairfield tenants who voted were in favour of the transfer to Kingdom with a 75% turnout.

46.

The transfer to Kingdom was completed on 1 December 2021. In light of this we ended our statutory intervention at Fairfield.

47.

On 29 March 2022, Fairfield was removed from the Register of Social Landlords.

48.

Fairfield met the costs of the statutory managers’ services and expenses during the intervention period (£145,285). The statutory appointees to the Governing Body gave their time voluntarily over the three-year intervention period. Their collective skills, knowledge and expertise ensured that Fairfield was able to address its serious and urgent weaknesses, continue to deliver services to tenants and other service users and deliver a successful transfer to Kingdom.

The positive outcomes from intervention

49.

The transfer secured the following positive outcomes for Fairfield’s tenants and other service users:

- improved management by a landlord that complies with Regulatory Standards and requirements; and

- a range of transfer commitments including:

• significant investment of over £5 million to be spent in the first three years on improving tenants’ homes including new kitchens, windows and doors as well as investment in the local community environment with projects identified through consultation with tenants;
• a rent freeze for Fairfield tenants until April 2023 and to limit rent increases in years 2024 and 2025;
• improvements to the front line repairs service including quicker response times using Kingdom’s in-house teams;
• the introduction of a range of support services to help tenants such as access to energy and money advice;
• maintaining community links by retaining the Fairfield office and staff along with the creation of a Local Area Committee and a place reserved for a tenant or shareholding member of the existing Fairfield Board on the Kingdom Board; and
• overall, a commitment to provide stable and strong governance through Kingdom’s Board as well as being financially viable in the long term with a robust 30 year business plan allowing for major investment while keeping rents affordable.

50.

Following transfer, we continue to engage with Kingdom about progress with the integration of Fairfield into Kingdom and with the delivery of the transfer commitments.

Appendix: Engagement and intervention timeline