Annington Properties, a property company owned by private equity investor Guy Hands (pictured), is bringing a legal challenge under human rights legislation to the Leasehold and Freehold Reform Act.
Annington is the leaseholder of thousands of military homes. It bought a 999-year lease to the Ministry of Defence’s married quarters estate in Bristol and Cranwell in Lincolnshire for £1.7bn in 1996 and rented it back to the MoD.
Increased property prices in the past 25 years mean the estate is now valued at around £8bn and generates significant sums in rent. The MoD is now trying to use its rights as a freeholder to buy the estate back, which has led to an ongoing legal dispute.
The company has now started separate legal actions in London and Strasbourg to clarify elements of the new Leasehold and Freehold Reform Act, which was given royal assent last month.
Among other things, the Act makes it cheaper for leaseholders to buy freeholds. Lawyers for Annington have advised the company that, while most of Annington’s leases are out of the scope of the Act, there are some drafting errors that could lead to the MoD reducing the compensation it pays if it is allowed to buy the estate back.
“Annington believes that under the terms of its contractual relationship with the Ministry of Defence, it is not impacted by the mechanism of the Act,” said Stephen Leung, the company’s chief financial officer, in a statement published on the London Stock Exchange’s Regulatory New Service.
“However, there is a risk that a court may interpret the contractual provisions differently and may find the relevant provisions of the Act applicable to Annington. Annington has filed these legal proceedings seeking clarity on the operation of the Act in order to address this risk,” the statement added.
The company has filed its challenge to the Act at the High Court in London and the European Court of Human Rights in Strasbourg, arguing that the legislation violates Protocol 1, Article 1 of the European Convention on Human Rights: protection of property.
Even though the Leasehold and Freehold Reform Act has received royal assent, it needs secondary legislation before it becomes effective. That is unlikely to happen until next year at the earliest. Even so, Annington is filing its case now so that its claim does not get time-barred.
Article 1 of the Convention states:
“Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.
“The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.”
This case could be another example of unexpected consequences caused by the Act, which was one of the last government’s flagship policies, and was rushed through parliament so that it could be given royal assent before the general election in July.
It could also be one of a number of upcoming legal challenges to the Act. “Annington understands that a number of other parties will also challenge provisions of the Act in the near term,” Leung said in his statement.
Children’s charity the John Lyon’s Charity is also bringing a legal challenge to the reforms. It is the freeholder of an estate in St John’s Wood in London and argues that the legislation will significantly damage its income, reducing its effectiveness as a charity.
Photo © Guy Bell/REX/Shutterstock
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