Why we are engaging with BT Loch Aillse agus an Eilein Sgitheanaich Ltd (Lochalsh and Skye)
We are engaging with Lochalsh and Skye about its governance, financial management, stock quality, tenant and resident safety and development plans.
In October 2022, Lochalsh and Skye submitted its Annual Assurance Statement that identified it had not been compliant with regulatory requirements including the Standards of Governance and Financial Management (the Standards) between May and August 2022. It stated that Lochalsh and Skye had addressed the issues identified regarding its governing body membership and was now compliant. It confirmed Lochalsh and Skye had developed a governance action plan for improvement and commissioned an independent audit of governance relating to the areas of failure.
In March 2023 Lochalsh and Skye shared the independent audit report with us, which identified further non-compliance with Standards one and six and areas for improvement including weaknesses in Lochalsh and Skye’s governance and assurance processes. This information led us to put Lochalsh and Skye’s regulatory status under review.
In June 2023 Lochalsh and Skye notified us of a serious tenant and resident safety matter. It identified that it had been inaccurately reporting full compliance with electrical safety requirements.
In September 2023 we completed our review of Lochalsh and Skye’s regulatory status and concluded that it was working towards compliance with regulatory requirements including the Standards, in particular Standards one, four and six. This was due to material weaknesses in Lochalsh and Skye’s approach to tenant and resident safety, governance and assurance processes, quality of reporting information to the governing body and risk management.
Following our engagement Lochalsh and Skye commissioned an independent review of its compliance with all of the regulatory requirements including the Standards and provided us with the results of this review in January 2024. The review identified that some improvement actions had been completed however a number of improvement actions remained. The review also concluded that Lochalsh and Skye was non-compliant with regulatory requirements including Standards one, four, five and six.
Lochalsh and Skye is now developing a revised governance action plan to set out how it intends to address the issues identified and to achieve compliance with regulatory requirements including the Standards.
We have updated our assessment and concluded that Lochalsh and Skye does not comply with regulatory requirements including Standards one, four, five and six. We are engaging with Lochalsh and Skye to seek assurance about its compliance with regulatory requirements including the Standards, and about its capacity to deliver the improvements required.
We are also engaging with Lochalsh and Skye to seek assurance about its approach to independently validating its stock survey information to support its business plan. The information was last independently reviewed in 2005. Lochalsh and Skye has completed an internal audit of the information and agreed that it will commission an asset management expert to support its stock survey process.
Lochalsh and Skye does not fully comply with electrical safety requirements which came into force in early 2022 and form part of the Scottish Housing Quality Standard. Lochalsh and Skye is currently progressing inspections to provide Electrical Installation Condition Reports in all of its tenants’ homes.
Lochalsh and Skye has told us about challenges it has faced, including accessing tenants’ homes and the availability of contractors, which has delayed its progress to complete the outstanding works. We expect Lochalsh and Skye to have appropriate plans in place to mitigate the delays in progressing these works.
Lochalsh and Skye has plans to grow through a programme of new homes for social rent and low cost home ownership and will receive significant public subsidy to help achieve this. The number of affordable homes provided by Lochalsh and Skye will increase by around a quarter over the next five years and Lochalsh and Skye has told us it will also need to obtain new private finance to support its development programme. We will engage with Lochalsh and Skye to get assurance about how it is managing the risks to the organisation including its levels of debt and development plans.
Lochalsh and Skye is working constructively and openly with us.
The Housing (Scotland) Act (2010) requires us to monitor and assess the financial well-being, governance and performance of each Registered Social Landlord (RSL).
Our current assessment is that Lochalsh and Skye is non-compliant and is working towards compliance with the Regulatory Standards of Governance and Financial Management. We set out below the information that Lochalsh and Skye must provide in order to assure us that it can achieve compliance.
What Lochalsh and Skye must do
Lochalsh and Skye must:
- send us the revised governance action plan;
- send us monthly updates on the progress on implementing the revised governance action plan and achieving compliance with our regulatory requirements including the Standards;
- send us by 30 April 2024:
- its approved business plan;
- its updated risk register including details of its approach to development risk management and mitigation;
- 30 year financial projections consisting of statement of comprehensive income, statement of financial position and statement of cash flow complete with assumptions and explanatory narrative;
- a comparison of projected financial loan covenants against current covenant requirements;
- financial sensitivity analysis which considers the key risks, the mitigation strategies for these risks and a comparison of the resulting covenant calculations with the actual current covenant requirements;
- the report to the Board in respect of the approved 30 year projections, sensitivity analysis and covenant compliance;
- the report to the Board/appropriate committee about its approach to risk management and mitigation; and
- evidence of how it demonstrates affordability for its tenants.
- send us an update on its development programme by 31 October 2024. This will include its latest report to the governing body/appropriate committee about development and details of the scale and tenure mix, timescales for delivery and any material delays or changes to the programme;
- tell us if there are any material adverse changes to its development plans which might affect its financial position or reputation, in line with our notifiable events guidance;
- provide us with the timescale and outcome for the proposed checks on its stock survey processes; and
- provide us with monthly updates on progress on achieving compliance with electrical safety requirements.
What we will do
We will:
- review the revised governance action plan and engage as necessary;
- review the updates and progress on implementing the governance action plan and achieving compliance with our regulatory requirements including the Standards and engage as necessary;
- review the business plan and financial information;
- meet with Lochalsh and Skye’s senior staff to discuss the business plan, the financial information and any risks to the organisation;
- review the development update and engage as necessary;
- review the timescale and outcome of the proposed stock survey process checks and engage as necessary;
- review progress on achieving compliance with electrical safety requirements and engage as necessary;
- review our engagement with Lochalsh and Skye on an ongoing basis; and
- update our published engagement plan in the light of any material change to our planned engagement with Lochalsh and Skye.
Regulatory returns
Lochalsh and Skye must provide us with the following annual regulatory returns and alert us to notifiable events as appropriate:
- Annual Assurance Statement;
- audited financial statements and external auditor’s management letter;
- loan portfolio return;
- five year financial projections; and
- Annual Return on the Charter.
It should also notify us of any material changes to its Annual Assurance Statement, and any tenant and resident safety matter which has been reported to or is being investigated by the Health and Safety Executive or reports from regulatory or statutory authorities or insurance providers, relating to safety concerns.