The Regulator of Social Housing (RSH) has warned of the risks with the lease-based provision of specialised supported housing in a new report.

This is where social landlords lease properties on a long-term basis, to provide much-needed specialised housing for people with complex support needs. The ongoing level of support should be similar to that provided in a care home, while enabling people to live independently in the community, the RSH says.

Over a number of years, the regulator says it has found significant and ongoing issues with some landlords in this part of the sector. Many have not been well run and have become financially distressed or insolvent when financial risks have crystalised.

The RSH says it is continuing to tackle the issues that fall within its remit and has taken action to improve the governance and decision making of some landlords. It has also made landlords address severe conflicts of interest, which had resulted in some taking on unfavourable lease terms and unsuitable homes from freeholders.

However, the regulator says very few lease-based landlords are delivering specialised supported housing in a way that consistently delivers the outcomes its standards. Significant issues include:

• The imbalance of risk and reward between the social landlord that leases the property and the freeholder that owns it. Social landlords generally pay inflation-linked leases for at least 10 years (and often longer), which absorb a large part of their rental income despite carrying substantial responsibility
• Limited capacity to manage risks, ongoing repairs and maintenance, and void periods when the property is empty and no rent is paid
• Weak governance, with some boards not understanding the scale of their lease liabilities and not challenging these arrangements at the outset
• Some landlords taking on a large number of homes without understanding the needs of tenants or the homes they live in. This can lead to poor outcomes for tenants and landlords incorrectly claiming rent exemptions to meet their lease payments.

The RSH has concluded that there is generally not enough flexibility in current lease terms for landlords to manage risks effectively. For the model to be sustainable and to protect tenants’ homes, landlords are going to have to address the issues raised in this report and this may need further negotiations with the freeholders.

Jonathan Walters, RSH Deputy Chief Executive, said: “Some landlords that provide specialised supported housing are exposed to a significant number of risks as a result of long-term and inflexible lease structures. The burden of risk often lies with the social landlord rather than the freeholder, and this can lead to viability issues and poor outcomes for tenants.

“We will continue to engage actively with the landlords who are failing to deliver the outcomes in our standards, and we will keep a range of regulatory interventions under review.”