Guy Hands’ Annington Homes gears up for legal battle with UK government

A company controlled by billionaire Guy Hands will launch a High Court battle on Monday in a bid to block the UK government from unwinding one of its most costly privatisation deals involving tens of thousands of properties in the Ministry of Defence’s housing portfolio.

The judicial review brought by Annington Homes will claim that the defence ministry is acting unlawfully by using property law to try to take back ownership of homes that were part of a controversial £1.7bn sale and leaseback agreement concluded in 1996.

The UK government said in January last year that it was exploring ways to force through renationalisation of the estate and would target a small number of properties in a test case.

Based on March 2022 valuations, the estate is now estimated to be worth £8.15bn, according to documents filed at London’s High Court.

In the 1996 deal, Annington Homes, which was subsequently acquired by Terra Firma, the private equity firm founded by Hands, bought 57,434 homes for military service families. The MoD then leased them back and agreed to cover the cost of their maintenance.

The deal, which signed the year before the then Conservative government lost power to Labour, has been widely criticised. The National Audit Office estimated in 2018 that the taxpayer was between £2.2bn and £4.2bn worse off from the transaction, overseen by defence secretary Michael Portillo, over the first 21 years of the contract.

In its test case, the MoD targeted a small number of houses with so-called enfranchisement notices under the Leasehold Reform Act 1967, which allows leaseholders to buy the freehold of their residential property at a price agreed by a court.

In its filing to the High Court, Annington is seeking a ruling that the enfranchisement notices were unlawful. It claimed they were part of a “wider scheme” by the MoD to issue enfranchisement notices in a number of test cases and then to “pursue a broader enfranchisement programme” of its property portfolio.

Annington also claimed the MoD was in breach of human rights laws and alleged that the action amounted “to use of compulsory acquisition powers by the Crown.”

It criticised the defence ministry for using state powers to “deprive it” of its property and alleged it had not “satisfied the conditions for compulsory acquisition,” adding: “No public interest which is consistent with the statutory scheme has been identified by the MoD.” It argued that the 1967 Act “was clearly not intended to be used by a public authority”.

Annington had considered selling the MoD property portfolio last year but this has been put on hold because of the lawsuit.

In its filings contesting the case, the MoD claimed that Annington’s legal action is a “transparent attempt by the claimants to use the judicial review procedure to increase their bargaining power over the MoD.” 

It added that a broader enfranchisement programme was “of course a possibility” but said that “no decision to pursue such a programme has been taken.” 

The MoD’s submission pointed to a January 2022 written ministerial statement by Jeremy Quin, then minister for defence procurement, announcing the first test case that said “if the cost of recovering full ownership of the units from Annington [was] less than the present value of MoD’s ongoing liabilities, such a transaction [was] likely to represent good value for money.” 

Terra Firma bought Annington from Nomura Holdings for £3.2bn in 2012. Hands, who is the chair of the private equity firm, was part of the Nomura team that struck the original 1996 deal. The MoD then leased back the properties on a 200-year lease at a discount but also agreed to pay the costs of refurbishment and maintenance.

The MoD said: “We are exploring our statutory leasehold rights as part of our ongoing review to ensure value for taxpayers’ money. It would be inappropriate to comment further while legal proceedings are ongoing.” Annington declined to comment.