Extract from House of Commons Hansard, Debates for 19th December 2002

Adjournment debate

Mr. Neil Gerrard (Walthamstow):

I shall be brief. I want to raise two issues: one involves my constituency and the other is a national matter. The constituency issue concerns the way in which public money has been used on a portfolio of roughly 3,000 properties. I must relate a little of the history so that hon. Members can understand the point that I am making.

The properties constitute an estate that was built by a company called Warner Estates probably 100 years ago. For many years, it acted as a private landlord and was regarded as fairly philanthropic. It gradually decided to get out of the rented market and started to sell the properties leasehold so that by about 1998, approximately three quarters were leasehold and a quarter were tenanted.

Late in 2000, the company decided to dispose of those properties. At that point, negotiations went on, which involved Circle 33 housing group. The focus was on the quarter of the properties that were tenanted or empty, because, quite clearly, if a social landlord could acquire those properties, that would be useful in an area with a rented housing shortage. All those who had the matter raised with them, including the local authority and me, thought that a sensible way to proceed.

In addition to the tenanted properties, however, there were about 2,000 leasehold properties and about another 300 properties involving two flats—one leasehold as well as one still tenanted—within a building. There were negotiations with Circle 33. Warner Estates had a subsidiary company called Benchlevel, which had a further subsidiary called Finalbrief. Warner Estates stripped out all the assets from the two subsidiaries and transferred all the freeholds to the ownership of Benchlevel.

Circle 33 then acquired the share capital of Benchlevel. In turn, it split the properties and took all the leasehold properties into the further subsidiary, Finalbrief. The share capital of Finalbrief was sold on to a company called Freehold Managers (Nominees) Ltd., in which all the shareholders were directors of HSBC Trust Corporation, which is based in the Isle of Man.

The question that arose involved the reason for using that mechanism to transfer the properties. The freeholds were transferred between companies that had been associated with one another for a number of years and the share capital of those companies was sold, not the freeholds. So, every single leaseholder was unable to apply the right of first refusal to buy their freehold, which they would have been able to do if the freeholds were being sold between the companies. That is why this mechanism was adopted.

Circle 33 said to me, "We have done that because Warner Estates insisted on selling the portfolio as a whole, and of course it moved the properties to its subsidiary before we bought them." That may be so, but I find it difficult to believe that all that was not thought out beforehand. Shell companies were created, which were then transferred along with the properties.

A lot of other issues arose involving how Circle 33 failed to give leaseholders information on what was happening, who owned the freeholds and problems with the companies that had become the new owners. Many of those we can now solve, however, partly because of the good leasehold reform legislation that the House passed last summer, which gives leaseholders many more rights.

The central issue that concerns me is that public money—Housing Corporation money was involved in funding Circle 33's acquisition of those properties—has been used to fund that purchase through mechanisms that were deliberately engineered to prevent leaseholders from being able to exercise the right to first refusal of purchase of the freehold. Nothing illegal has been done, but there has been deliberate engineering to achieve that outcome, which causes me considerable concern. That is not how public money should be used through a social landlord.