Giant £9B PRS Sale Put On Hold After Row Between Government And PE Fund

The sale of the UK’s largest private rented residential property owner has been delayed after a row between the company’s owner and the Ministry of Defence, with the government using a tactic pioneered in the world of private equity. 

Terra Firma, the private equity firm owned by Guy Hands, was in the process of lining up advisers to sell Annington, Sky News reported earlier this month, with a price as high as £9B touted. 

But Terra Firma now says the sale is delayed indefinitely while it proceeds with a legal action against the MoD, which leases the majority of the portfolio.

Annington bought 57,000 homes from the MoD in 1996 for £1.7B, then leased them back on a 200-year lease to be used by armed forces personnel. 

Over the years Annington sold off a big swath of homes, but still owns 40,000, of which 38,000 are still leased by the MoD. The government department pays £183M a year in rent plus the cost of the upkeep of the homes, or around £140M a year. 

But on 27 January, in a written statement to the House of Commons, UK Minister for Defence Procurement Jeremy Quin said that the MoD wanted to unwind the lease arrangement with Annington. 

It was trying to do so using “statutory leasehold enfranchisement rights to buy out Annington’s interest in the homes and gain full ownership rights”, the statement said. 

This is where a leaseholder uses statutory rights to essentially buy out the freeholder of a property and take full ownership of it, at a value determined by a court. The MoD is trying to do so on a single house as a legal test case.

Ironically, this strategy sees the government using a method of taking control of a property portfolio that was pioneered by another private equity firm. Westbrook used the same strategy to take full control of the Dolphin Square block in central London before selling it at a big profit.

For the UK government, the strategy is about avoiding further lost value. In 2018, the National Audit Office criticised the deal, saying that rising property prices meant that the sale caused the government to miss out on £4.2B of value uplift. 

But Terra Firma said it would fight against the enfranchisement. 

“Regardless of any legal merit, reneging on agreements that had been operating for over 25 years is an appalling thing for the British government to do,” the company told the Financial Times.  “While this will be a very long and very expensive legal dispute, we will prevail.”

Terra Firma confirmed the sale of the company was on hold, adding: “This is clearly extremely negative for the investors who include various UK pension funds and sovereign wealth funds representing strategic military allies of Britain.”