MoD declares war on Terra Firma homes deal

The Ministry of Defence wants to reverse a 1996 deal that privatised tens of thousands of properties. Jeremy Quin, minister for defence procurement, gave notice in a Commons statement that the government wants to buy the homes back from Annington Homes, which is owned by Guy Hands’ private equity firm Terra Firma. Quin said the MoD would “explore the exercise of its statutory leasehold enfranchisement rights to buy out Annington’s interest in the homes and gain full ownership rights”. The move is likely to spark a legal battle between the MoD and Terra Firma over whether the government can force through the acquisition of the estate. Terra Firma had been in talks to sell Annington in a £9bn deal, with Hands believed to own roughly a third of Annington’s equity. It said this deal was now on hold. The company bought Annington from Nomura Holdings for £3.2bn in 2012. However, Hands was also part of the Nomura team that struck the original 1996 deal. The MoD sold 57,400 properties to Annington Homes in 1996 for £1.7bn, making it the biggest residential property owner in England and Wales. It then leased back the homes on a 200-year lease at a discount, but in return also agreed to pay the costs of refurbishment and maintenance. The deal was struck by the then defence secretary Michael Portillo. The portfolio is now valued at £7.6bn, according to accounts for Annington, while the MoD has to pay close to £183m a year in rent as well as the cost of upkeep of the 38,000 homes it still leases. The National Audit Office said in 2018 that the deal had already lost the taxpayer up to £4.2bn, given the huge increase in the value of property after 1996. The NAO said the MoD “has 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”. MoD officials are keen to avoid further losses over the remaining 174 years of the lease, and are attempting to use the property law of enfranchisement to take back ownership of parts of the portfolio. Quin told MPs on Tuesday that initially the MoD had made a single claim for one house, in Cranwell, and intended to submit a further claim over another house in the near future. He said: “It is hoped that this test case will establish certain key principles.” The 200-year deal came with a 25-year rent review, which occurred at the end of last year. The settlement will increase annual rents across the Annington portfolio by about £36m. The MoD also spends about £140m every year on repairs, maintenance and upgrades of the properties. Terra Firma said: “Annington has been aware since mid-December of the MoD’s attempt to enfranchise a single property in Cranwell. “This is the first time the MoD has indicated in any forum that it wishes to enfranchise more than one unit. We believe that regardless of any legal merit, reneging on agreements that had been operating for over 25 years is an appalling thing for the British government to do. “Our advice is that while this will be a very long and very expensive legal dispute, we will prevail. However, clearly this does put the sale of Annington on hold. This is clearly extremely negative for the investors, who include various UK pension funds and sovereign wealth funds representing strategic military allies of Britain.” The Guardian The FT (£) The Times (£)