MoD eyes exit from ‘appalling’ service-family housing deal

Minister sets out plans to use leaseholder-rights legislation to buy back tens of thousands of homes from private-equity firm
Former MoD homes owned by Annington in Wiltshire. They are currently being marketed for £475,000 each. Photo: Hamptons

By Jim Dunton

01 Feb 2022

The Ministry of Defence is looking to use leaseholder-rights legislation to get out of a 200-year leaseback deal for service-family housing that has left it billions of pounds worse off in the first 20 years of the agreement.

Jeremy Quin, minister of state for defence procurement, said the MoD had launched a test case that could pave the way for the department to buy back properties sold to Annington Property under a 1996 deal.

In a written statement to parliament, Quinn said that if the cost of recovering full ownership of the homes was less than the present value of the MoD’s ongoing liabilities, it was “likely to represent good value for money”.

The deal, which was agreed under John Major's Conservative government, saw the MoD give Annington 999-year leases on 55,000 homes across more than 500 sites in return for an upfront payment of £1.66bn. It then rented them back from the firm on 200-year under-leases.

The National Audit Office said in a 2018 report that the MoD’s decision to proceed with the deal was based on “over cautious” assumptions about the growth potential for property values, and had cost it between £2.2bn and £4.2bn because of subsequent house-price growth.

The public-spending watchdog also noted that although the MoD was renting back homes from Annington, at a cost in the region of £178m a year, the deal “unusually” required it to pay for empty properties and all maintenance costs. At the time, the MoD had surrendered some homes to Addington and was leasing 39,000 of the original properties.

Public Accounts Committee chair Dame Meg Hillier described the leaseback deal as “appalling”. The PAC also said it was “scandalous” that roughly 10,000 of the properties were vacant at the time of a national housing shortage, even though the MoD was still paying rent on them.

In his statement to parliament at the end of last week,  Quin said the MoD had served notice of its desire to enfranchise a house currently leased from Annington under section five of the Leasehold Reform Act 1967.

“Initially, the MoD has made a single claim for one house, with the intention to submit a further claim in respect of another house in the near future,” he told MPs.

“It is hoped that this test case will establish certain key principles. The cost of enfranchising these houses will be in accordance with the statutory enfranchisement formula, fixed at the date of the notice of claim, and the price will be agreed between the parties or determined by an independent tribunal.

“A successful enfranchisement programme would also provide the MoD with more flexibility in the management of its estate to the benefit of defence, tenants, and potentially wider government objectives.”

However, Quin acknowledged that Annington – which is owned by private equity company Terra Firma – had signalled its intention to challenge the MoD’s approach.

The 2018 NAO report underscored that the original leaseback agreement had been “a great deal for the landlord” and had given Annington an annual return estimated at 13.4% to the end of March 2017.

It said the MoD had based its decision to proceed with the deal on “proposed policy benefits” such as releasing money to upgrade the estate and incentivising the department to dispose of properties faster, but those objectives were only met in part.

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