The Ministry of Defence (MOD) continues to review its estate to ensure value for money.
In 1996, the Ministry of Defence, in what was effectively a sale and leaseback agreement, granted a 999-year lease of over 55,000 Service Family Accommodation homes to Annington Property Ltd and immediately leased the homes back on 200-year underleases. In 2018, the National Audit Office concluded in its review of the arrangements that taxpayers are between £2.2 billion and £4.2 billion worse off as a result of the sale and leaseback arrangements.
Given our obligations to secure value for money, we have reviewed MOD’s current arrangements with Annington and now set out the steps that MOD is taking to deliver greater value for money for the taxpayer in relation to Service Family Accommodation.
First, MOD engaged highly experienced advisers and counsel to deliver a settlement with Annington in the site rent review process. This settlement achieves value for money, and removes ongoing uncertainty for the Department; we believe it to be a good outcome and a fair settlement. The settlement resulted in a change in the overall adjustment to open market rents from 58% to 49.6%.
Secondly, MOD continues to reduce the number of untenanted properties which it holds since these otherwise represent a liability for the taxpayer, by returning these to Annington under the terms of the lease.
Thirdly, MOD can confirm that the Department will explore the exercise of its statutory leasehold enfranchisement rights to buy out Annington’s interest in the homes and gain full ownership rights. 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. 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. If the cost of recovering full ownership of the units from Annington is less than the present value of MOD’s ongoing liabilities, such a transaction is likely to represent good value for money. The MOD would then benefit from any future appreciation in value of the units. Accordingly, the MOD has served notice on Annington under Section 5 of the Leasehold Reform Act 1967 of its desire to enfranchise a house currently leased from Annington. Annington, through its lawyers, has notified the MOD that it is considering the impact of the claim and has put the MOD on notice of a potential dispute.
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.