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(Bloomberg) — Guy Hands’ Annington Property Ltd. agreed to sell back to the UK government tens of thousands of military homes and associated real estate for £6 billion ($7.6 billion), after losing a legal challenge in a test case last year to block the sale of some of them.
Annington agreed to sell its interests in the Married Quarters Estate, which comprises roughly 36,000 properties in England and Wales and associated real estate, according to a statement on Tuesday. The assets are now valued at £10.1 billion when not subject to leases, the defense ministry said in a separate statement.
The deal will bring to an end an “arrangement which has seen the taxpayer spend billions of pounds on rental payments for military housing while still being liable for rising maintenance costs,” the defense ministry said.
In 1996, the defense ministry sold a portfolio of residential housing for £1.7 billion to Annington, now backed by Hands’ Terra Firma Capital Partners, in a deal that left the government significantly out of pocket. The government then rented thousands of those homes on long-term leases. When it wanted to buy some of those back, Annington kicked off a court battle last year to block the move, but lost its bid, making it a test case for the government before deciding whether to push for a sale of the whole estate.
The initial deal to sell the homes was “disastrous” the Parliament’s Public Accounts Committee said in 2019, given the ministry pays Annington millions of pounds a year in rent for the houses it leases. The National Audit Office estimated that the department is between £2.2 billion and £4.2 billion worse off since the 1996 deal, mostly due to soaring house prices.
Read: Hands Loses Bid to Stop UK Unwinding £8 Billion ‘Bad Deal’
In its legal filings, the ministry said buying back the estate would create better value for money for taxpayers, while Annington argued that the government had no right to make the move without its consent.
As part of the government’s new military housing strategy that’s expected to be published next year, the transaction is likely to save it around £230 million every year in rent. Eliminating the liabilities associated with the leases creates “budgetary headroom” to partially fund this purchase, it added.
With the conclusion of the deal, all actual or potential claims between the parties in connection with the MQE will be settled, Annington said, adding that the exchange of contracts occurred on Dec. 16 and the transaction will close on Jan. 9.
Annington plans to use the proceeds from the sale to “reshape” its balance sheet and streamline its debt, it said in a separate statement.
–With assistance from Jonathan Browning.
(Updates with background and usage of the proceeds.)
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