Power to the people? well, not exactly

For Council tenants, last month was the month of the “power promise”.

The Fabian Society advocated compulsory transfer of housing stock in the context of registered social landlords committing fully to tenant empowerment; and in Preston, there was a positive vote by tenants for a community gateway RSL with “unprecedented” levels of tenant empowerment and tenant shareholders (HT 7 January, page 12). So current wisdom would suggest that tenant empowerment is the elixir for transforming an estate from purgatory to paradise.

But just what legal powers can tenants really have? Is it possible for tenants themselves to control an RSL by forming

a majority on the board? Sadly, the

answer to that question is no. An RSL majority-controlled by tenants would not meet the corporation’s registration criteria of being “independent” of any particular interest group.

This in itself is not a matter of legalities. The real reason that tenants cannot be allowed to form a majority of the board is commercial: it would make funders very nervous. For example, funders may feel that a tenant-controlled RSL might not raise rents or invest for the long term. There may also be concerns that such RSLs would be unable to take advantage of the benefits of charitable status owing to the tenants’ position as beneficiaries. But providing the tenant board members were disbarred from voting on very specific matters from which they themselves received the main benefit – and the constitution made the conflict rules clear – this should not be the case.

Could tenants be the majority shareholders? Legally yes, but tenant shareholders would not be allowed to change the constitution, nor block changes to the constitution. Again, this is something that would make funders and any parent RSL rather nervous.

So what exactly does tenant empowerment consist of? To win tenants’ votes, promises are made to them in an offer document. But the question that tenants need to be asking is whether these promises are legally enforceable. After all, the offer document is not a contract with individual tenants but with the tenants as a whole.

There is an agreement between transferee RSL and council that commits the RSL to carrying out the works, rent guarantees and all the other goodies in the offer, but there are two drawbacks. First, the RSL, backed by the funder, will try to limit the RSL’s obligations to “reasonable efforts” to keep the promises. And what reasonable efforts are, particularly for a charitable RSL, depends on the context at the time delivery is required.

The second drawback is the mortgagee exclusion clause. This means that if the RSL gets into financial difficulties and as a result the funder takes control and transfers to another RSL, the “new” RSL is not bound by any of the promises made to the tenants.

Can tenants control an RSL by forming a majority on the board? Sadly, no

The estate could be transferred to a new RSL on terms that mean it does not have to do all the work initially promised to tenants, or that allow it to raise rents or sell void properties.

But surely there is no need to worry as any “new” RSL has to have the approval of the Housing Corporation, which will ensure the promises are kept. Or will it? Most promises maybe, but some may have to be ditched to encourage a new RSL to take over.

The lesson here for tenants is to look for

an RSL that is part of a big group and ensure that the group guarantees the transfer.

One encouraging legal trend is the development of the doctrine of substantive legitimate expectation, where promises made by public authorities (and RSLs are increasingly regarded as such) that persuade someone such as a tenant to take a particular action (like voting in favour of a transfer) are likely to be enforced. But if the estate were transferred to another RSL would promises still have to be fulfilled? While there is no certainty, there is a strong probability that the courts would say that if the RSL took over the assets, it should also take over the burden attached to those assets.

The best solution for tenants is to get the promises into the tenancy agreement. Usually rent guarantees, enhanced succession and right-to-buy rights go into the new tenancy agreement, but there is no reason why other important promises cannot also be included so that whoever owns the estate is bound by the same agreement and tenants can enforce. Even if a new RSL puts in the mortgagee exclusion clause or the unilateral right to waiver the terms of the tenancy agreement, those exclusions would be unlikely to survive the tests of the “unfair terms” in the Consumer Contract Regulations 1997, which protect tenants against unfair contract terms.

For tenants, “empowerment” is an empty buzzword in legal terms until the promises made to tenants are made fully enforceable. And the obstacles to that are not legal, they are cultural and commercial.

n Louis Robert is a senior partner of Prince Evans and a board member of Genesis Housing Group. Email: lrobert@prince-evans.co.uk