The UK government has won the right to take back control of thousands of military homes worth £8bn after a court ruled that the previous privatisation was a “bad deal” for the government, in a significant blow to the private equity investor Guy Hands.
London’s high court ruled on Monday that the Ministry of Defence (MoD) has the right to buy back the remaining 38,000 homes, which were bought in 1996 by Annington, a group of companies ultimately controlled by Hands, for £1.7bn.
Annington immediately said it planned to appeal against the decision.
MPs on parliament’s public accounts committee described the sell-off as “disastrous for taxpayers” because it did not include clauses to give them a share of future price rises for the properties. The government missed out on as much as £4.2bn as the value of the 57,400 homes rose, the MPs said in 2018.
However, the MoD remained a leaseholder, paying rents to Annington. Government lawyers advised that ministers had the right to enfranchisement, the ability to buy the freehold of leased properties. Annington had argued that the government should not have that right, and that the state was exercising its powers improperly.
Mr Justice Holgate found that there was no way to say the government’s “motive was improper” in wanting to take back the properties, as the defence secretary was “entitled to make legitimate use of such bargaining power as he has”. He wrote: “The arrangements were and still remain a bad deal for the MoD, its [service family accommodation] estate and the public purse.”
An Annington spokesperson said: “We are surprised and disappointed by the outcome. It risks setting a dangerous precedent for businesses and international investors in the UK and if upheld would mean that the government can disregard long-term contracts if it believes it is in its interests to do so. As we consider this to be a matter of significant public importance, we will appeal this decision.”
If the appeal were unsuccessful, the victory in the test case would allow the government to take back control of the whole estate. If the enfranchisement proceeds, the government will pay a price for the homes decided by a court.
An MoD spokesperson said: “We welcome the decision of the high court, which finds that the MoD acted lawfully in seeking, successfully, to establish its right to enfranchisement.
“No decision has been taken on further enfranchisement cases, but we will consider the high court’s decision and the potential implications for securing better value for money for the taxpayer.”
The judgment showed that government officials had in 2021 advised ministers to move quickly to take back the properties to because “a scenario in which MoD waited for Guy Hands to crystallise a very significant profit, walk away, and then MoD decided to exercise its rights against the new owner … would be reputationally very damaging for MoD”.
Natasha Rees, a senior partner at Forsters, a law firm that represented the government, said: “The high court has found that MoD does benefit from a right to enfranchise. MoD will now consider whether enfranchisement might achieve better value for money for the taxpayer. The case involved complex aspects of the law of enfranchisement, some of which had never been decided before.”
