Monday, 30 January 2012

Britain's Biggest Boot Sale

While everyone has been getting very het up and posturing like fury over how much the bankers now presiding over the Royal Bust of Scotland deserve for sorting out the debts and liabilities another fine mess has crept in under the radar.

It appears that the Tchenquiz brothers have had the warrants of their arrests revoked on the grounds that the Serious Fraud Office did not manage the job properly.

The consequence has been that their business records have been returned to them and that they are now able to put some financial deals in hand. Legal action against the SFO for £100 million in damages is under consideration.

The reports, which may not be entirely accurate, suggest that they are still in the hole for around £2 billion of debt and wish to defray this by a large boot sale of their ownership of the freeholds of around 250,000 properties currently leased.

This is claimed to be around one per cent of the total UK leasehold sector. It may not sound much but as any financial sector can be sensitive at the margins it needs watching for the implications.

A delicate question arises about why all these freeholds are still in their possession to be sold. At one time most, if not all, were held in subsidiaries of their Consensus Business Group one way or another.

In March 2011 from within this Group a major subsidiary Peverel Group were taken into Administration by Zolfo Cooper because of a default on debt obligations. Clearly by this time these freeholds had been removed.

The chances are that they went to a brass plate company in the British Virgin Islands. This meant that the freeholder Landlords of those 250,000 UK properties had been sold on without notice to their leaseholders, who were left dealing with companies that had once held them but were now agents for transmitting funds.

By one of those happy coincidences so often to be found amongst our global traders generally, Zolfo Cooper, the Administrators, have an office in the British Virgin Islands. What is the old song? “Caviar Comes From The Virgin Sturgeon”?

According to reports the sale of the freeholds is to be dealt with by Lazards and targeted at “sovereign wealth funds”, see Wikipedia for an outline of what these are and the listing of the major ones are in the world today.

The asking price is £3 billion which should see off the immediate debts; leave a modest billion or two in hand and give a lot of creditors a close back and sides. The leaseholders will not know much about it. The taxman can go and whistle.

What it entails is that the ownership of a lot more property will be going abroad along with the major shifts in a lot of other property ownership to tax havens. Has either the government or the opposition taken on board the full implications of what is happening and the consequences, intended or unintended?

In the leasehold sector it means that the Landlords of a great deal of UK property are out of control of UK law or fiscal requirements and are likely to take little direct interest in the operation or impact of their investments.

Unluckily, the 2002 leasehold etc. reform act, largely based on long past thinking, provided for Right to Manage Companies in individual leasehold developments to be formed which both gave residents more say but also more responsibilities.

The leasehold sector of the 1980’s and just after had developed out of a history of different types of property provision and patterns of ownership. Just as the 2002 Act was passed and was being implemented the gathering storm of global finance had begun to impact and to radically change the way it operated.

The actual law and some decisions arising from it are muddled and it is not clear just where the real liabilities and vulnerability to things like compensation claims lie or in the absence of the real Landlord whether they are insurable.

Consequently, these RTM companies, instead of being a device for devolving decision and protection now may have been landed with a much greater liability for the Landlord functions for which they are not equipped or financed. They do not own the freeholds and the theoretical Landlords are gone to other jurisdictions.

Amongst the 250,000 properties is a large slice of the retirement housing provision with its own increasing issues of care in the community etc. Having this in the hands of offshore or foreign financial operators has some serious issues.

Another interesting question is why suddenly such a major operator is dumping out of UK property large scale and urgently. Of course, they are talking the sale up as good because property values are bound to increase indefinitely.

We have heard that one before. It is all very complicated and intricate and you will not hear much from the politicians about any of the questions arising. Was this one an item on the confidential agenda of the recent visits to China?

Or is it just part of “The Great Complacence”?

We may never find out.


  1. £Has either the government or the opposition taken on board the full implications of what is happening and the consequences, intended or unintended?"

    The likes of Mandy, Bliar, Huhne and others will be party to this, Demetrius. It won't have happened without some huge favours being called in. Bet Nat "The Fixer" Rothschild won't be far away, either.

  2. The trick with owning freehold reversions is that the landlords usually overcharge for the "services" they provide as part of the service charge-a nice little earner (well, not so little actually).
    There is provision in the legislation for the service charge to be challenged-but most leaseholders don't do it.