Transfer tug of love takes a new turn

Recently Clays Lane, an east london housing co-operative, failed to get a judicial review of a Housing Corporation order that it transfer its stock to a major registered social landlord (HT 21 May, page 11).

The decision raises important points as to how, and in what circumstances, the Housing Corporation can order an RSL to transfer its property to another – especially in a situation like this, where two RSLs are willing to take the transferred stock but the corporation prefers one and the transferring RSL prefers the other.

R (Clays Lane Housing Co-operative Ltd) v the Housing Corporation was the first time the corporation's power to force transfer has been judicially challenged.

It was also the first time the Human Rights Act has been used as an argument against forced transfer: Clays Lane claimed that the corporation's action was interference with the property rights and rights of association of the members of the co-op.

During the case, the judge considered the background to the corporation's decision to force a transfer and particularly the way the decision was made.

The corporation, using its statutory powers, ordered a transfer of Clays Lane's property to the Peabody Trust under the 1996 Housing Act. Clays Lane submitted that the corporation should permit a voluntary transfer of engagements to Scotland-based Tenants First Housing Co-operative, the largest fully mutual co-op housing association in the UK. Both co-ops had been exploring the possibility of a merger since March 2002, some time after the original inquiry into Clays Lane had ended.

The board of the Housing Corporation had compared the relative merits of a compulsory transfer of Clays Lane's stock to Peabody with the voluntary transfer to Tenants First.

It felt that:

• public funding would be more at risk if Clays Lane's engagements were transferred to Tenants First, because of the relative financial strengths of Tenants First and Peabody, and that Peabody would be more likely than Tenants First to attract new public funding for Clays Lane's homes
  
• the tenants would have greater security as assured tenants of Peabody than as contractual tenants of a fully mutual co-op
  
• Peabody provided the necessary level of certainty that the board required in view of Peabody's long history of working in inner London, its financial strength and its commitment to tenant participation – whereas Tenants First's proposals did not give the board that level of certainty.

Clays Lane said the Housing Corporation wasn’t judging a beauty parade, and a compelling public interest must exist for a forced transfer

The challenge
The key to Clays Lane's challenge was its rights under the Human Rights Act. The judge said two rights were being protected: the right to peaceful enjoyment of one's possessions – in other words, the homes; and the right not to be deprived of them by compulsory transfer.

The corporation's board had taken a comparative approach, which Clays Lane believed was wrong – so much so that Clays Lane felt that even if a transfer to Peabody was, on the face of it, preferable, it still should have permitted the transfer of engagements to Tenants First, as the corporation's decision was based on the wrong premise.

Clays Lane said the corporation's board was not judging a beauty parade, that forcing a transfer must be strictly necessary and that there must be a compelling case for it in the public interest.

The judge disagreed, saying that what the board had to determine was whether there was a compelling case in the public interest for the transfer of Clays Lane's stock to Peabody, having balanced the comparative benefits of a compulsory transfer to Peabody and a voluntary transfer to Tenants First, and Clays Lane's wish for the latter so that its members could continue to enjoy the benefits of a co-op.

If a comparison of the benefits and disadvantages of the two options compellingly shows the option that results in the deprivation of property is much to be preferred, the judge said, a compelling case for adopting that option in the public interest will have been established.

The key finding, which will be welcomed by all those in social housing, is the exact nature of the test that the corporation's board has to adopt. As explained above, it is a comparative test in which the board has to balance the relative merits of the competing RSLs, together with the wishes of the RSL whose assets are being transferred.

It is clear the courts expect careful consideration to be given to the arguments, and to listen, as happened here, to both sides. Because of that, the judge held that the board made the right judgment as to where the "fair balance" lay and that factors in favour of Peabody, on a rational basis, outweighed Clays Lane's right (subject to the corporation's consent) to dispose of its housing stock as it wished.