MoD braces for legal showdown as it eyes up eye-watering £8BILLION purchase

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The MoD revealed last month that it planned to wrest ownership of the properties 25 years after the government sold them to Annington, run by billionaire Guy Hands’ private equity firm Terra Firma. In a written statement to the House of Commons on 27 January, Jeremy Quin, minister for defence procurement, told MPs that the Government was planning to explore its “statutory leasehold enfranchisement rights to buy out Annington’s interest in the homes and gain full ownership rights”.

The Government sold the properties to Annington for £1.7billion in 1996 on a sale and leaseback deal, with the MoD renting back the homes at a discount on a 200-year lease.

The value of the properties has ballooned since, with the homes now valued by Annington at some £7.97billion.

However, the National Audit Office has dubbed the sale a disastrous deal for taxpayers who it concluded were between £2.2billion and £4.2billion worse off because of the arrangement, according to a 2018 review.

The review found that the MoD had “lost out on billions of pounds’ worth of increases in asset values, while Annington has made a significantly higher return on its investment than expected”.

Mr Quin told MPs that the MoD was reviewing the deal “to secure value for money” for the taxpayer.

By exercising its leasehold enfranchisement rights the Government would purchase the freeholds at a price agreed by an independent tribunal using market values, meaning it will likely reflect the current valuation.

It has so far sought to take back ownership of two houses as test cases to assess whether Annington can be forced into the sale.

The controversial move to forcibly buy back the homes, which would break with the 200-year lease agreement signed by the Government in 1996, has outraged current landlord Annington who has threatened the MoD with legal action if it pursues the plan.

Annington, through its lawyers, has said it is “considering the impact of the claim and has put the MoD on notice of a potential dispute”, Mr Quin told MPs.

In a letter sent to Mr Quin and defence secretary Ben Wallace, Labour peer and Annington’s chair Baroness Liddell described the government’s move as “decidedly anti-business” and “ill-conceived”, and demanded the MoD halt its attempt.

Baroness Liddell told “It reflects incredibly poorly on the Government and sets a deeply concerning precedent. If the MoD is allowed to back out of an agreement that has been working successfully for 25 years, what protects other UK property owners, or companies that contract with the Government, from this type of state overreach?

“If the Government is seen by the business community as untrustworthy, it will have serious consequences for its ability to attract investment in the future.”

Baroness Liddell continued: “The £8billion it would cost the Government to forcibly buy back the properties would be far better spent by the MoD on strategic defence issues, or indeed, on better maintaining these homes.”

For the £8billion it would cost the MoD to buy back the properties at market value it could afford either two new aircraft carriers, 1,900 new Challenger tanks, 72 Typhoon fighter jets or eight Royal Navy Type-45 destroyers.

It is also some 90 times the aid package of £88million the Prime Minister announced would go to Ukraine in January.

Annington have instead offered a one-off payment of £105million for the Government to use on refurbishing the homes. 

According to Annington, many of the homes are in a poor condition despite the MOD being solely responsible for that maintenance. Yet the MoD pays around £180million in rent and £140million on maintenance for the properties each year.

Baroness Liddell wrote: “It would be a shame to see money that could go to improving the houses being wasted on costly and lengthy legal action.”

An MoD spokesperson said: “We believe our approach offers a significant opportunity to deliver value for money for the taxpayer and increase our flexibility in meeting the needs of service families and wider government objectives.

“We will of course study whatever Annington puts to us.”

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Addressing MPs, Mr Quin said that if the cost of repossessing the homes was less than the MoD’s current liabilities “such a transaction is likely to represent good value for money. The MoD would then benefit from any future appreciation in value of the units”.

However, Annington have questioned the timing of the move, suggesting that the £8billion cost of the properties and money spent on potential legal disputes would be better spent elsewhere.

Baroness Liddell wrote in the letter: “By making the attempt, the MoD is now exposed to a claim which may run into the billions of pounds and which would result in either the reallocation of much-needed MoD funding from elsewhere within an already strained budget or yet a further burden upon the Treasury.

“Such a claim is surely a distraction from the true purpose of the Ministry of Defence.”

The Government has not yet responded to the maintenance offer.

Baroness Liddell told “Our position is simple. If the Government drops its half-baked expropriation scheme, there will be no need for legal proceedings. We have no wish to engage in an expensive and time consuming legal dispute, and neither should this Government.”

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