Guy Hands’ Annington Homes is gearing up for a legal battle with the UK government

A company controlled by billionaire Guy Hands is set to launch a High Court battle on Monday to prevent the UK government from reversing one of its costliest privatization deals involving tens of thousands of properties in the Ministry of Defense’s housing portfolio.

The judicial review launched by Annington Homes will claim the Ministry of Defense is acting unlawfully in using property rights to try to regain ownership of homes that were part of a controversial £1.7billion sale and leaseback deal , which closed in 1996.

The UK government said in January last year it was looking at ways to force the renationalisation of the estate and would target a small number of properties in a test case.

Based on March 2022 valuations, the estate is now valued at £8.15 billion, according to documents filed with London’s High Court.

In the 1996 transaction, Annington Homes, which was later acquired by Terra Firma, the private equity firm Hands founded, purchased 57,434 homes for military service families. The Department of Defense then leased them back and agreed to cover the cost of maintaining them.

The deal, signed a year before the then Conservative government lost power to Labour, was widely criticised. The National Audit Office estimated in 2018 that the taxpayer was worse off between £2.2bn and £4.2bn over the first 21 years of the deal by the deal, which was overseen by Defense Secretary Michael Portillo.

In its test case, the MoD targeted a small number of homes with so-called disenfranchisement notices under the Leasehold Reform Act 1967, which allows tenants to purchase title to their home at a court-set price.

In its submission to the High Court, Annington seeks a ruling that the disenfranchisement notices were unlawful. It claimed they were part of a “broader program” by the Department of Defense to issue disenfranchisement notices in a series of test cases and then pursue “a broader program of disenfranchisement” of its real estate portfolio.

Annington also alleged that the Ministry of Defense had violated human rights laws, and claimed that the action “twas amounting to the use of compulsory procurement powers by the Crown”.

It has criticized the Department of Defense for using state powers to “deprive” its property and claimed it “failed to meet the conditions for the expropriation,” adding: “The Department of Defense has not identified any public interest in doing so.” is consistent with the rule of law.” It argued that the 1967 Act “was clearly not intended to be used by any public authority”.

Annington had considered selling the MoD real estate portfolio last year, but that was put on hold due to the legal battle.

In its filings challenging the case, the Department of Defense alleged that Annington’s lawsuit is a “transparent attempt by plaintiffs to use the judicial review process to enhance their bargaining power vis-à-vis the Department of Defense.”

It added that a broader disenfranchisement program was “obviously a possibility,” but said that “no decision has been made to go ahead with such a program.”

The Department of Defense submission pointed to January 2022 Ministerial Statement by Jeremy Quin, then Secretary of Defense Procurement, who announced the first test case, which said: “When the cost of regaining full ownership of Annington’s units is incurred [was] less than the present value of MoD’s current liabilities, such a transaction [was] probably good value for money.”

Terra Firma bought Annington from Nomura Holdings in 2012 for £3.2 billion. Hands, chairman of the private equity firm, was part of the Nomura team that closed the original 1996 deal. The Department of Defense then leased the properties back for 200 years at a discount, but also agreed to cover the cost of renovation and maintenance.

The Department of Defense said: “We are examining our statutory leasehold rights as part of our ongoing review to ensure there is value to taxpayers’ money. It would be inappropriate to comment further while the court case is ongoing.” Annington declined to comment.