Watchdog says homes deal cost MoD '˜billions' in lost property cash

Spending watchdog the National Audit Office (NAO) claims the Ministry of Defence (MoD) has lost between £2.2bn and £4.2bn in an historic deal with property giant Annington, due to a rise in property prices.

Made in 1996, the agreement saw the MoD selling 55,000 homes it owned for an upfront cost of £1.66bn before then renting them back on a 200-year lease with Annington.

Having surrendered some of the units since then, the MoD is now paying £178m a year in rent on 39,000 homes – including 6,000 in Hampshire.

But there are fresh fears the cash-strapped MoD could be hit with a heftier rent bill, as the way fees are paid is due to change in 2021.

The NAO says Annington is looking to drive up rental prices by £84m a year. If approved, these rent assessments will set a precedent for the next 175 years of the contracts.

Amyas Morse, head of the NAO, said: ‘(The MoD) carried out a sale and leaseback deal almost 20 years ago, based upon pessimistic views of the future growth in property values, but with the mitigating feature that the rents charged to the military families who lived there were restricted for the first 20 years.

‘This has cost the public sector a great deal in capital growth, and it has been a great deal for the landlord.

‘In 2021 the period of restricted rents is over. The question is now whether the landlord will get a very large rent increase on top of the very substantial capital gains they have already received.’

The MoD has started to prepare for the 2021 rent reviews, but has not yet begun contingency planning or assessed what alternatives it has on a site by site basis, the NAO said.

In a warning, the organisation said the MoD should not ‘underestimate the amount of effort required’ to collect and analyse information for each of the 511 sites where homes are located.

The MoD has also ‘unusually’ been paying for empty properties – 19 per cent of the current stock – and all maintenance costs, including for properties it has sold.

MP Meg Hillier, chairman of the public accounts committee in Westminster, blasted the news.

She said: ‘The MoD’s sale of service family accommodations in 1996 has turned out to be a rotten deal for the taxpayer. There is a risk that when rents come up for renewal the next deal will be even worse.’

Gosport MP Caroline Dinenage was also concerned. Her constituency is home to scores of military families, many of whom live in properties owned by Annington.

She said: ‘This deal was short-sighted and had no value to the taxpayer. One would have hoped we have learnt from lessons like this.’

The Tory MP added: ‘We do need to fight for the very best deal for the taxpayer and of course for the families that live in this accommodation.’

The MoD said it was committed to getting ‘value for public money’ and has had a team working on the new deal since 2015.

A spokesman added: ‘The NAO supported the Annington deal in 1997 and is clear that the surge in house prices could not have been predicted.

‘We have a team working on renegotiating the deal, and believe that rent prices should continue to fall to secure value for money for taxpayers.’