UK government pays £6bn to end privatisation of military housing

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The UK government will pay property group Annington nearly £6bn to buy back about 36,000 properties in the military housing estate, ending a legal battle over one of the country’s most controversial privatisation deals.

The Ministry of Defence on Tuesday said it had agreed terms to take back the military homes it sold off for £1.7bn in the final years of John Major’s Conservative government.

The deal ends a tortuous near 30-year privatisation under a complex system of leases that has sparked multiple court actions and saddled the government with billions of pounds in rent and maintenance costs.

“Today ends one of the worst ever government deals,” said defence secretary John Healey, calling it a “dreadful deal done in 1996 just before the election when ministers . . . conducted a fire sale [of] defence homes”.

Healey said the government would take the “once in a generation” opportunity to improve the quality of home for service members and families, and to better use MoD land to boost the government’s wider housebuilding agenda.

The so-called Married Quarters Estate was privatised in the 1990s on a long-term lease to Annington. But the government recently sought to take back ownership of the assets, triggering a legal dispute with the property company owned by private equity group Terra Firma, which was founded by billionaire Guy Hands.

Annington said the deal would bring an “end to all ongoing litigation”.

Hands, a prolific and colourful dealmaker, passed leadership of Terra Firma to his son Richard last year, but remains a shareholder. He was also part of the team that struck the original 1996 deal for Nomura, which sold Annington to Terra Firma in 2012.

Under the 1996 deal, Annington took a 999-year lease over some 55,000 properties. The MoD then leased back the homes on a shorter term at a discount, and agreed to shoulder the costs of refurbishment and maintenance.

Annington has also exercised its rights under that deal to sell off thousands of units no longer needed by the military over the years. 

Taxpayers have ended up £8bn worse off from the privatisation, the MoD said, based on the rent it has paid and the value of the roughly 18,000 homes it has given up. The buyback would save £230mn in rent every year, it added.

The MoD added that the deal would “bring to an end to 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 price paid for the estate represents a discount of 13.5 per cent to the fair value of the properties in March 2024, according to the property company’s annual report. 

Annington chief executive Ian Rylatt said it had agreed the deal to end a “costly and distracting legal dispute”. It has also on Tuesday made an offer to bondholders to reduce its £3.7bn debt pile by redeeming some of the bonds. 

James Cartlidge, shadow Tory defence secretary, welcomed the deal and said that negotiations started under the previous government. He said the apparently large upfront cost was “broadly offset” by removing the long-term annual costs from the government’s books. 

“The real gain is that instead of spending huge amounts on sticking plaster for forces accommodation, we can rebuild them for part of what may become the most exciting regeneration project in recent history,” he added. 

The MoD in late 2022 began a process to regain control of the properties through enfranchisement rights, that allow leaseholders to take back properties at a value agreed by a court, which Annington resisted.

The High Court last year upheld the government’s move to unwind the 1996 deal, which Annington appealed. A hearing was scheduled for July, which both parties agreed not to go ahead with in order to explore a potential resolution outside of court.

The property group separately took the Conservative government to court last year to challenge its new leasehold reform legislation.