Jargon Buster
A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
Affordable Rent
Since February 2011 this denotes rented housing where the rent is set at 80% of the market rent inclusive of service charges (market rents are used when setting the Housing Benefit Local Housing Allowance). The Charity Commission has provided guidance on what charitable housing associations need to consider when charging affordable rents. Guidance is also available on the Communities and Local Government and the HCA’s websites.
Asset Lock
In general terms this means a provision within the CLT’s constitution to ensure that:
- any trading profits or surplus are used solely for the benefit of its Objects;
- its assets are retained by the entity and if sold/let/transferred then only in the prescribed circumstances allowed for; and
- on dissolution its assets cannot be distributed to its members but must transfer to another asset locked entity.
The Asset Lock will require specific wording depending on which legal form you choose for your CLT.
Asset Lock for charities (as CLG, CIO or IPS as exempt charity)
Becoming a charity is an irreversible step. The Public Benefit Requirement and charity law on dispositions (ie sale, lease or transfer of assets) combined with the legal constitution (to name but some aspects of being a charity) effectively creating a perpetual asset lock.
Asset Lock for Registered Providers
Grant-aided assets are restricted in their use and disposal by the terms of the HCA funding and Housing and Regeneration Act 2008. As a result it is not usual to include the wording of the Statutory Asset Lock because such an entity can only cease to be an RP with the consent of the TSA (or its successor).
Charitable Objects
“Objects” is the expression used within all constitutions to set out the purposes/aims of the legal entity being created (incorporation). The Objects direct and guide the CLT’s activities and how its assets may be used to achieve those objects. Using assets for purposes not stated is not allowed particularly if the CLT is a charity. To be charitable the objects must:
- fall within at least one of the purposes listed in Charities Act 2006; and
- be for the public benefit. This means (very broadly) that the object must have an identifiable benefit or benefits and the benefit must be to the public or a section of the public rather than for private benefit. See separate definition.
Not all objects that aim to benefit individuals or communities are necessarily charitable – for example, an object which aims to provide housing won’t be charitable because this isn’t one of the purposes listed in the Charities Act 2006. But if providing housing is a means of achieving an object (for example, relieving or preventing poverty), this is more likely to be charitable. This is because preventing or relieving poverty is listed as a purpose in the Charities Act 2006 and providing housing can be a legitimate way of achieving this. Whether it is in fact charitable or not will depend on whether the aim is going to be for the public benefit.
Information on charitable purposes and public benefit can be found at http://www.charity-commission.gov.uk/Charity_requirements_guidance/Charity_essentials/Public_benefit/public_benefit.aspx
Applying for charitable status should be considered carefully as it might not be appropriate and it is important to remember that becoming a charity is an irreversible step.
Charity Commission
This is the charity regulator in England and Wales. Most charities must register with the Commission and file their accounts and a financial summary with it. Some groups of charities aren’t required to do this – the main exceptions are for charities with incomes of less than £5,000 a year and IPS/Community Benefit Societies. The Commission’s website includes the charity register and copies of charities’ accounts and financial returns.
Charitable Incorporated Organisation (CIO)
This is a new legal structure that only charities can use. The main advantage will be that (like charitable companies) they provide protection for trustees from personal liability for contracts but (unlike charitable companies) they only have to register with and send accounts to the Charity Commission. The CIO structure is not yet available to use but should be ready by late 2011. You can, however, find out more about how they will work from the Charity Commission’s website.
Charitable Purposes (or aims)
The Charities Act 2006 describes 13 purposes which can be charitable if they are carried out for the public benefit. The ones that are most likely to be relevant to a charitable CLT are:
- the prevention or relief of poverty;
- the advancement of citizenship or community development;
- the relief of those in need by reason of youth, age, ill-health, disability, financial hardship or other disadvantage;
A CLT choosing to be a charity must undertake aims and activities that further one of these or the other purposes listed in the Act; the Sample Objects [add in link] show how this can work in practice.
Community Interest Company (CIC)
See a full summary as well as the table comparing legal forms. This is a limited liability company which is designed for Social Enterprises and which has the specific aim of providing benefit to a community. A CIC must use its income, assets and profits for the community it is formed to serve. A CIC can be a company limited by shares or by guarantee but must satisfy a community interest test. You should seek legal advice if you want to adopt the company limited by shares model because this could affect whether the statutory definition of a CLT is satisfied. The usual company model is the company limited by guarantee.
Asset Lock for a CIC: The very essence of a CIC is its Asset Lock. A Company Limited by Guarantee can only take on the mantle of a CIC by incorporating the Asset Lock required by the CIC Regulator as a minimum, although a more stringent Asset Lock could be used instead.
Community Land Trust
One of the kinds of English Body that can register with the TSA/HCA. The definition from section 79(2)-(5) of the Housing and Regeneration Act 2008 is a body corporate that satisfies the following conditions:
- the body is established for the express purpose of furthering the social, economic and environmental interests of a local community by acquiring and managing land and other assets in order
- to provide a benefit to the local community, and
- to ensure that the assets are not sold or developed except in a manner which the trust's members think benefits the local community;
- the body is established under arrangements which are expressly designed to ensure that
- any profits from its activities will be used to benefit the local community (otherwise than by being paid directly to members),
- individuals who live or work in the specified area have the opportunity to become members of the trust (whether or not others can also become members), and
- the members of the trust control it.
In these conditions, “local community” means the individuals who live or work, or want to live or work, in a specified area.
Whilst a Community Land Trust might be able to register with the TSA/HCA this will not guarantee that the Trust can be registered as a charity. To be a registered charity a Trust must have aims that are exclusively charitable which are carried out for the public benefit. Not all activities that benefit communities and the people who live and work there are exclusively charitable. There may be elements to these purposes that give private benefit to those in the community which may fail the charity registration test for public benefit.
Company Limited by Guarantee (CLG)
See a full summary or the table comparing legal forms. A CLG offers its members limited liability as the outside world deals with the company as a separate entity and not the Company Members on an individual basis. Should the company fail, the governing documents state how much the members are personally liable for (usually a nominal £1). Directors also enjoy a level of protection from personal liability. A CLG can apply to become a registered charity with the Charity Commission. Asset Lock for a CLG: A non-charitable CLG can have an Asset Lock but its strength depends on the attitude of the members because an Asset Lock can be voted out by the members. Where a local council or other third party organisation is the Custodian of the constitution, they act to protect the company Articles and, as such, the ability of the other members to change the Asset Lock is significantly weakened. The role of the Custodian would be to veto any changes to the Articles which affect the Asset Lock. This is set out in the sample Articles for a CLG.
Declaration of trust
This is a formal legal agreement between a CLT and someone buying low cost housing from it. The declaration of trust sets out the respective shares in the land held by the CLT and the buyer. It is usually contained in a 125 year Lease. In some ways it is similar to shared ownership. See Annex D on Property.
English Bodies
This is an expression used in the Housing and Regeneration Act 2008 setting out the legal entities that can register with the TSA/HCA as a Registered Provider in England (not Wales or Scotland).
Equity mortgage
In this method, the buyer acquires the property outright with a mortgage from a High Street lender for (say) 70% of open market value, the remaining 30% being held on a second equity mortgage by the CLT. See Annex D on Property.
Fit and Proper Person Test
This test only applies to exempt charities (Industrial and Provident Societies with charitable objects) – “exempt” means not registered with the Charity Commission. This is due to change in the near future. Currently this only applies to gift-aid, but will be extended to cover more aspects of a Charity’s dealings with the tax office (HMRC). In order to avoid the fraudulent use of tax breaks, a Charity must check that anyone controlling it is a ‘fit and proper person’. An individual is 'fit and proper' if they ensure that charity funds and tax reliefs are used only for charitable purposes. A declaration is signed to declare that the person:
- has not been disqualified from acting as a charity trustee;
- has not been convicted of an offence involving deception or dishonesty (or any such conviction is legally regarded as spent);
- has not been involved in tax fraud;
- is not an undischarged bankrupt;
- has not made compositions or arrangements with my creditors from which I have not been discharged § has not been removed from serving as a charity trustee, or been stopped from acting in a management position within a charity;
- has not been disqualified from serving as a Company Director; and
- will at all times seek to ensure the charity’s funds, and charity tax reliefs received by this organisation, are used only for charitable purposes.
More guidance can be found at: http://www.hmrc.gov.uk/charities/guidance-notes/chapter2/fp-persons-test.htm A copy of the help sheet and model declaration can be found at: http://www.hmrc.gov.uk/charities/guidance-notes/chapter2/model-dec-ff-persons.pdf.
Financial Services Authority (FSA)
The current regulator/registration body for Industrial and Provident Societies (or Community Benefit Societies). At some point the FSA will cease to be the Regulating Body but it is not yet known when this will happen or who will take over. More information can be found at: http://www.fsa.gov.uk/pages/index.shtml
Homes & Communities Agency (HCA)
Created by the Housing and Regeneration Act 2008, the HCA is the funding agency for Social Housing. It is tasked with bringing land back into productive use and enables local authorities to achieve housing and regeneration ambitions for their own areas. Once the TSA is abolished, the HCA will take over its functions. The functions include regulating RPs by setting standards for social housing provision. More information can be found at: http://www.homesandcommunities.co.uk/
Industrial and Provident Society (“IPS”)
See a full summary and the table comparing legal forms. An IPS is an organisation which conducts an industry, business or trade for the benefit of the community and which is registered under the Industrial and Provident Societies Act 1965. This can be charitable or non-charitable.
Asset Lock: A non-charitable IPS that does not seek to become a Registered Provider can choose to adopt the Statutory Asset Lock. It is not a requirement of registration that the Rules contain this. The Statutory Asset Lock was introduced in response to concerns around the de-mutualisation of various Industrial and Provident Societies (building societies) in 2002/3. Once adopted within the Rules the Statutory Asset Lock cannot be removed. The FSA also has powers to make sanctions for improper use of the CLT’s assets.
Local Housing Allowance
This is the level at which Housing Benefit is payable for tenants of non-RP landlords. This value will need to be compared to the value of affordable rent (80% of the market rent) to consider affordability of a dwelling to a tenant.
Model Constitutions
The registration process to become an IPS/Community Benefit Society will involve using the Model Rules of a sponsored body. The CLT Model Rules are available from the National CLT Network/ National Housing Federation. Other Model Rules are available from Wessex Community Assets, CDS Co-Operatives, etc. There are model Articles for a CIC or CLG (charitable and non charitable) on this website. The Charity Commission has model Articles for a CLG and its CIO. The CIC Regulator has model Articles for CICs.
Not for Profit
This means that an organisation’s primary purpose is the provision of specific services/activities to a defined community for the community’s benefit and not for the distribution of monetary profit to shareholders. It is therefore not a commercial trading entity.
Objects
This is the expression used within all constitutions to set out the purposes/aims of the legal entity being created (incorporated). The Objects direct and guide the CLT’s activities and how its assets may be used to achieve those objects. Using assets for purposes not stated is not allowed. The powers granted to the CLT need to be sufficient to enable the Objects to be pursued.
Registered Charity
If your charity’s income is over £5000 and it undertakes exclusively charitable purposes for the public benefit you must apply to register your organisation with the Charity Commission. A charity can take the form of a number of legal structures. These include Unincorporated Associations, Trusts or a Company Limited by Guarantee (CLG). A CLG must register with and report to both the Charity Commission and Companies House.
After registering as a charity, there are a number of ongoing duties and responsibilities to the Commission that must be complied with. You will need to maintain your charity’s accounts and send the Annual Return it issues each year. Depending on the level of income you may also need to have the accounts audited or independently examined and to file a Trustees Annual Report. You also need to tell the Charity Commission when there are changes to the charity’s registered details (for example, if the contact address for the charity changes), inform it of any ‘serious incidents’ (such as fraud) and obtain its consent to sales of leases of land to people connected with the charity. Once your charity is registered it may be eligible for some tax breaks - corporation tax (income tax for organisations), stamp duty land tax (buying land or property over a certain value), gift aid on donations and rates relief. As outlined above, registered Charities have an Asset Lock in perpetuity.
Registered Provider of Social Housing/Registered Provider (RP)
This is a legal entity (ie English Body) registered with the HCA and/or TSA to provide Social Housing in England. Being a Registered Provider makes the legal entity eligible for HCA grant funding (note: eligibility does not guarantee availability of funding). A Registered Provider can be for profit or not for profit. A CLT cannot be a for profit Registered Provider.
Re-sale price covenant
This is a method by which a buyer buys the property outright at a percentage of its open market value, but enters into a covenant (binding agreement) with the CLT not to sell the property except at the same percentage of market value. See Annex D on Property.
Self Build
This means a project where a group of people acquire plots or part built properties and pool skills to build or finish houses/dwellings so that they will each have a home suitable for their needs. The time of other professionals may need to be bought in for certain aspects of the build, but by using this method the self-builders capture more of the final value of the property. This type of project raises questions around whether this can be classed as a charitable activity and legal advice should be sought on the specific project being planned.
Shared ownership
This means the grant of a lease of a share in a property to a lessee for (usually) 125 years, with the lessee paying a rent on the unsold share. The lessee would have the ability to acquire further shares at open market value (“Staircasing”). See Annex D on Property.
Social Enterprise
These are businesses that trade in the market with a social rather than commercial purpose. Profitable trading will be for sustainability rather than wealth creation for individual members of the organisation. A social enterprise is not defined by its legal status but by:
- its nature;
- its social aims and outcomes;
- the basis on which its social mission is embedded in its structure and governance;
- the participation of its shareholder groups in its governance and activities; and the way it uses the profits generated by trading activities.
Typical legal structures are: Community Interest Companies and Industrial and Provident Societies. See introduction to legal forms for a comparison of legal forms.
Social Housing
This has a specific meaning and is provided by sections 69-72 of the Housing and Regeneration Act 2008: “social housing” means
- low cost rental accommodation (defined by section 69), and
- low cost home ownership accommodation (defined by section 70).
The definitions set out the type of housing that the HCA grant funding can legally help to provide. Note: CLG policy is evolving and new concepts of Affordable Rent and the National Affordable Housing Programme 2011-2105 (“NAHP Funding”) will impact on HCA grant funding.
Sponsored Body
For the purposes of Model Rules for a CLT, the Sponsored Body is the National CLT Network. Other sponsored bodies are as listed on the FSA website: http://www.fsa.gov.uk/pages/index.shtml
Statutory Asset Lock This is available as a matter of choice for an Industrial and Provident Society that is neither an exempt charity nor a Registered Provider. The Statutory Asset Lock wording is set out in the Community Benefit Societies (Restriction on Use of Assets) Regulations 2006. If the Statutory Asset Lock is selected, the precise wording contained in the sample Rules must be used. Once inserted into the Rules it cannot be taken out. The FSA has regulatory powers to enforce compliance with the Statutory Asset Lock.
Tenant Services Authority (TSA)
The TSA is soon to be abolished and have its functions transferred to the HCA. Currently, the TSA regulates RPs by setting standards for social housing provision, particularly around key areas such as tenancy terms, rents, tenant involvement, viability and contributions to sustainable communities. It also deals with applications for RP status. More information can be found at: http://www.tenantservicesauthority.org/
Umbrella CLT
This can be a support body across a region for other CLTs or it can be a hybrid (an enabler and active CLT).