A property company owned by Guy Hands’s private equity firm Terra Firma has withdrawn a £105m offer to repair the “appalling” military homes that it owns and is leasing back to the Ministry of Defence.
The proposal by Annington Homes, which owns about 38,000 service properties, had been contingent on the MoD dropping its attempt to forcibly buy-back the estate sold to the firm in 1996.
In a letter to the defence minister Alex Chalk, the former Labour cabinet minister Helen Liddell, who is the chair of Annington Homes, said the decision to kill its offer of a “modernisation fund” for the 30,000 homes currently occupied by military families “pains” her.
“We made this offer as an attempt to rebalance our relationship, improve housing conditions on the estate and to avoid protracted and expensive legal proceedings in relation to the enfranchisement notices issued by your department,” she wrote.
“To date, we have received no formal response to our offer and as a result have been forced to reconsider our position. Please accept this letter as notification that Annington Ltd withdraws its offer of £105m in respect of the Married Quarters Estate.”
In 1996, the MoD, under the then defence secretary Michael Portillo, sold about 55,000 military homes to Annington Homes – a company now owned by Terra Firma, the private equity giant founded by Hands – for a £1.66bn cash sum.
The MoD took out a 200 year lease on the homes in order to continue to provide accommodation to its service personnel and their families. The government remained solely responsible for the upkeep and repair of the homes under the deal.
The portfolio of properties used by the MoD is now smaller but the annual rent is said to be close to £183m a year and the government has been unable to capitalise on the large increase in value of the portfolio. At the same time, the ageing stock has fallen increasingly into a state of disrepair.
Four years ago, the National Audit Office found that increases in housing prices meant the government was between £2.2bn and £4.2bn worse off than it would have been if it had retained the property portfolio.
Terra Firma, which is headed by Hands, bought Annington from Nomura Holdings for £3.2bn in 2012.
In January, the government said it was looking to unwind the privatisation by exploring the government’s “statutory leasehold enfranchisement rights to buy out Annington’s interest in the homes and gain full ownership rights”.
In response, Annington offered to establish a modernisation fund of £105m through which the occupied properties could be improved “as part of a constructive offer to the government to avert a lengthy and costly legal battle over attempted enfranchisement of army housing”.
The company wrote: “The Defence Infrastructure Organisation (DIO), the operating arm of the MoD, is entirely responsible for the maintenance of service homes, which have been allowed to reach appalling conditions in some cases.
“Annington’s substantial commitment goes above and beyond the DIO’s usual maintenance budget and will allow for a significant improvement in the estate. It would be managed by the military families who live in the properties and would be released over a period of three years.”
On Friday, Annington wrote to the MoD to withdraw that offer due to the lack of response.
Liddell wrote: “Whilst it pains me to take this step, I still strongly believe that the best interests of all parties are better served by working together to reach a mutually acceptable solution that avoids diverting further time and legal costs to pursing this matter through the courts.”
Meanwhile, the government had outsourced a new set of maintenance contracts, worth £650m, in April, as part of what it described as an “enhanced service” to military personnel. The MoD was, however, forced to apologise in September about the “unacceptable” level of service.
In response to figures that showed that nearly a third of all the service properties had still required repairs as of 13 October, the outsourcing company responsible for resolving complaints admitted on Monday that the “transition” from the previous arrangements for maintenance was “taking longer than anticipated”.
