By Alistair McIntosh, chief executive, HQN

The public has had enough of poor services and so too it seems have ministers.

At long last the government has booted out TransPennine Express and instead runs the trains itself as an ‘operator of last resort’.  Now the courts are allowing ministers to do the same with the MoD’s housing estate and boot out the company that owns them.

The quality of social housing gets pelters from ministers and social media. Are we next on the hit list? It’s an open secret that many councils want to take their homes back from the housing associations they once sold them to. Does the MoD case give councils the green light to do so?

Back in the 1990s, councils were transferring their homes to housing associations. Why did they do this? They got a bumper cheque from the new specially created stock transfer housing associations that went a long way to clearing the council’s debts. What was in it for the tenants? They got three things: lower rent increases, improvements to their homes and seats on the board of the associations. You could say it was a win-win.

In a village hall deep in the Fens, a cynical tenant said this deal seems too good to be true. Quick as a flash the consultant replied – that’s because the government wants you to vote for it.

The MoD was struggling to pay for the upkeep of its homes and liked what it saw in these transfers. So, they asked the consultants that cut the deals for councils to do much the same for the MoD. And they did.

There were a few important differences though. Private companies bid to buy the homes in an auction. Housing associations didn’t get a look in. The government sold the homes to the winning company, Annington, on a leasehold basis not a freehold basis. So, the parties were bound together. Annington bought a 999-year head lease then leased the estate back to the MoD for 200 years. The councils went the other way and washed their hands of the homes altogether by selling the freeholds to the associations they set up.

At first, everything in the garden was rosy. The government was delighted with its cheque. Even the National Audit Office thought the deal was value for money. But it became a classic case of ‘marry in haste, repent at leisure’.

Basically, Annington paid the MoD a one-off up-front sum of money for the homes. It was based on assumptions at the time about rent levels the MoD would pay under the lease and proceeds from sales of surplus homes. A lot has changed since then, to put it mildly. The property market was in a slump during the mid-1990s. Did that play on the minds of the negotiators? As we all know prices have rocketed since then.  Never was there a truer phrase than past performance is no guarantee of future results.

Wisely, the MoD did negotiate discounts on market rents but, even so, costs went up well beyond expectations. Unlike council stock transfers, the MoD agreed to take all the risks of maintenance and void losses. By 2018, the National Audit Office calculated that the government would have been up to £4billion better off if the sale had never taken place. And on top of that the standards of repair were woeful. Government had to act.

How did they seek to untie this Gordian Knot? That’s where the lease-based sale came to the rescue. Under Harold Wilson’s Leasehold Reform Act from 1967 (as amended) a leaseholder can in some circumstances oust the landlord through a process known as enfranchisement. And the courts now say that the MoD can use this to remove Annington. Word of warning – the judgment runs to over 150 pages and I am no lawyer, so this is something of a simplification.

Can this judgement help the government or councils to take back homes from failing housing associations? No, I don’t believe so. The legalities seem very different to me.

But it could have been a close shave. One northern council did want to transfer on a leasehold basis. The government vetoed this deal, so a normal freehold transfer took place instead. In hindsight was that a wise decision?

Does this mean that housing associations can relax? Will ministers and councils huff and puff to no avail? What I would say is that the government has deployed a range of innovative legal tools to outfox poor providers elsewhere. They are showing that where there is a will there is a way. I would treat this as a warning shot across the bows and keep going with improvement plans.

Guy Hands is the owner of Annington and for a while he also owned the record company EMI. He was on a flight with Paul McCartney who said: “Look, this is our music. You guys have it because of an accident of history. We should have it back.” That is more or less what councils are saying. Now it is true that they don’t have the cash to run the homes if they do get them back. But it’s not a completely academic question. Only a few years ago many councils did raise huge sums at preferential rates to buy commercial portfolios. That may or may not be possible to do again at some point.

How will housing associations answer the McCartney question when it comes? Are the relations in some places recoverable?