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 36,000 properties in the Ministry of Defence’s housing estate, ending a legal battle over one of the country’s most controversial privatisation deals.

On Tuesday, the Ministry of Defence said it was taking back the military estate it sold off for £1.7bn almost 30 years ago, in an agreement sealed in the final years of John Major’s Conservative government.

The sale ends a tortuous 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.

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 using the property law of enfranchisement, triggering a legal dispute with the property company owned by billionaire Guy Hands’ private equity group Terra Firma.

Defence secretary John Healey called Tuesday’s deal a “decisive break with the failed approach of the past” and said it would allow the government to improve conditions for service members and their families. 

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

Under the £1.7bn agreement struck in 1996, Annington originally took a 999-year lease over about 55,000 properties. The MoD then leased back the homes over a shorter term at a discount, and agreed to shoulder the costs of refurbishment and maintenance.

Taxpayers have ended up £8bn worse off from the nearly 30-year privatisation, the MoD said, adding that the buyback would save £230mn in rent every year. It said the family estate was now valued at £10.1bn when not subject to leases.

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 to end Annington’s long lease to 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. 

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

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. 

The MoD in late 2022 launched a bid to regain control of some of the properties under 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.