The Minister for Defence Procurement (James Cartlidge)
The Ministry of Defence (MOD) continues to review its estate with a view to securing better value for money. The MOD therefore welcomes the High Court’s decision dismissing the recent challenges from Annington.
In 1996, the Ministry of Defence, in what was effectively a sale and leaseback agreement, granted a 999-year lease of over 55,000 service family accommodation homes to Annington Property Ltd and immediately leased the homes back on 200-year underleases. In 2018, the National Audit Office concluded in its review of the arrangements that taxpayers are between £2.2 billion and £4.2 billion worse off as a result of the sale and leaseback arrangements.
In January 2022, the then Minister for Defence Procurement informed the House of the steps MOD was taking to explore the extent of its statutory leasehold enfranchisement rights. MOD sought to test these rights through the issuing of enfranchisement notices for eight properties. These notices were designed to explore the extent of the MOD’s statutory rights, which are available to all qualifying leaseholders, and to help determine whether enfranchisement can secure better value for taxpayers. Annington was aware that the MOD could seek to enfranchise and had previously referred to that possibility in public facing documents.
Since then, claims have been brought against the Secretary of State for Defence by Annington, Annington Limited and Annington Holdings (Guernsey) Limited in respect of these test notices on both private law—declaratory—and public law—judicial review—grounds in relation to the notices and MOD’s right to enfranchise more generally. The ensuing trial was held in February 2023 and judgment has now been handed down.
We welcome the decision of the High Court, which has dismissed all the challenges brought against MOD. The High Court has confirmed that the MOD acted lawfully, that the MOD was entitled to issue the enfranchisement notices and that those enfranchisement notices were valid.
Given our obligations to secure value for money, this decision has the potential to provide the MOD with more flexibility in the management of its estate to the benefit of service personnel and their families and potentially wider Government objectives. I note three points:
Firstly, no formal decision has been taken on further enfranchisement of the estate, but the MOD will consider further the potential implications for securing better value for money for the taxpayer in light of the High Court’s findings. The MOD will consider relevant factors, including the ongoing operational requirement for the properties and the economic case for enfranchisement, which may differ between sites.
Second, if the MOD does pursue enfranchisement of other units and the parties cannot agree the enfranchisement premium, the relevant premium will be determined by an independent tribunal in accordance with the relevant legislation by reference to a market value, with both parties having the opportunity to present their respective views. If the tribunal were to determine that the cost of enfranchising the units is less than the present value of the rental liabilities, then enfranchisement is likely to represent value for money for taxpayers.
Third, we continue to work with Annington and, most importantly, the MOD is focused on providing good quality, desirable homes for service personnel and their families.
[HCWS789]