What a way to make a living

No, I don't know what the Housing Corporation is going to say about paying board members or when it will say it. But most people think that there is going to be an increased ability for board members to be paid. So, what are the legal implications?

First of all, there is no need for legislation. The 1996 Housing Act already has the statutory provisions for paid board members. What is needed is a determination from the corporation to allow payment of more than the £50 a year that is currently allowed. But that alone will not be enough for board members to be paid.

The majority of registered social landlords are prevented from paying board members not just by the Housing Corporation rules but by their constitutions. Whether charitable or non-charitable, company or industrial provident society, most RSLs will find somewhere in their rules a sentence saying no board member may receive any benefit from the RSL (with some limited exceptions to allow board members to be housed).

A few recently established RSLs do have provisions allowing them to pay whatever the corporation allows them to pay. The rest will not be able to pay anything until they have changed their constitutions. This will mean obtaining Housing Corporation consent for the change, holding a general meeting and registering the change at Companies House or with the Financial Services Authority, as appropriate.

Presumably the Housing Corporation will consent but it is quite possible it may require tenants to be consulted first – as it does on other major constitutional changes such as conversion to charitable status.

It is likely a 75% majority will be needed at a general meeting. How easy will that general meeting be? Some RSLs quite probably have members or shareholders who will object. It is not a change that will be nodded through. And what about board members who are also shareholders of an industrial and provident society or members of companies limited by guarantee? Can they vote for themselves to be paid? Most probably they can, although whether they should is another matter.

There is no legal duty on members to vote on the best interests of the company or to avoid conflicts of interest

There is no legal duty on shareholders or members to vote on the best interests of the company or to avoid conflicts of interest. Some RSLs have constitutions that require shareholders and members to act in the best interests of the organisation, but it is not clear how much legal weight can be given to that. In any event, that would not prevent a board member voting to be paid if they think such payment is in the interest of the RSL.

More complex is the position of those RSLs whose articles or rules say amendments cannot be put to the general meeting unless first approved by the board. When board members vote as board members, they will be bound by any provisions in their articles that disqualify them from voting on any matter in which they have a personal interest. These provisions all vary and will have to be read closely but there may be some where getting the change to a general meeting is almost impossible – unless the members that vote for the change do so knowing they are about to retire and will never be paid, which would remove the conflict.

Registration at Companies House or the FSA should be straightforward. But what about charities? Even if the corporation thinks boards of charitable RSLs should be paid on the same basis as non-charitable RSls, that is no guarantee the Charity Commission will agree. For any RSL that is a company limited by guarantee registered with the Charity Commission, a change to its constitution will require Charity Commission consent. Under section 64 of the 1993 Charities Act, any change to the memorandum and articles that affects the objects or the application of the charity's assets needs consent. Paying board members falls into this category. Although the Charity Commission's publication Payment of Charity Trustees suggested a more relaxed approach, in practice the commission is very reluctant to agree that charity trustees need to be paid for being trustees.

Supposing you have managed to avoid all the problems, the general meeting has passed the change, your constitution now allows payment – does that mean all will be well? Not necessarily. What if you are a stock transfer association and the tenants were told in the offer document on which they voted that board members would not be paid? Was that a promise or merely a statement of the law at the time? If it was a promise, how long does it last? Forever? What if the council undertook to the tenants that it would enforce the promises? Could unhappy tenants make the local authority take action? Any transfer association will need to look very carefully indeed at what was said and to whom. They will need to consult with their tenants very thoroughly before moving to pay board members.