The Ministry of Defence (MoD) lost up to £4bn after selling and leasing back married military quarters, a report by the National Audit Office (NAO) has found.
The NAO concluded that the MoD committed itself to annual rental bills of nearly £200 million and lost out on billions of pounds of assets as a result of selling and leasing back the majority of its married quarters estate to Annington Property Limited in 1996.
In 1996, the MoD sold around 55,000 housing units that it owned in return for an upfront £1.66 billion cash sum, and then rented them back on 200-year under-leases from Annington.
Having surrendered some of the units since then, the Department is paying £178 million per year in rent for the remaining 39,000.
In 2021 the way the rents are calculated will change.
While the MoD expects rents to fall, the NAO says Annington’s expectations imply a rise of around £84 million a year.
These rent assessments will set the precedent for the next 175 years of the contracts.
The NAO found that, mainly due to actual house price increases since the sale, the Department is £2.2 billion to £4.2 billion worse off over the first 21 years of the contract than if it had retained the estate.
Amyas Morse, head of the National Audit Office, said: “The department carried out a sale and leaseback deal almost twenty 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 twenty 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.”
Among those sold to Annington were more than a hundred properties in Catterick Garrison which were later sold off as they were deemed surplus to requirements.
House hunters camped outside the Annington sales offices when it was announced batches of properties were to be sold between 2001 to 2004.
They were keen to take advantage of the cheap prices, with three-bedroom properties selling for less than £40,000.