The Leasehold Knowledge Partnership’s concerns over the two-storey planning give-away to owners of residential freeholds – worth billions – is reported in The Times today.
Robert Jenrick, the housing secretary, has given a “multibillion-pound” planning windfall to freehold investors including those in a fund run by David Cameron’s brother-in-law. Under reforms, owners of residential tower blocks will be allowed to extend their developments upwards by two storeys without planning permission from the start of next month.
The newspaper focusses on William Waldorf Astor’s secretive £2 billion Long Harbour fund – where beneficial ownership of the Adriatic Land and Abacus Land freeholds are hidden and often offshore.
In evidence to the Communities Select Committee this year, Long Harbour said it managed 190,000 flats.
LKP argues that about 1,900 freeholds could qualify for two-storey planning windfall adding four flats each. If sold for a profit of £250,000 each, the fund will have risen in value by £1.9 billion.
The Times reports:
“Long Harbour said that the majority of its investors were pension funds and that it did not recognise those numbers. It said that it had not changed the valuation of its fund since the policy change and that the new rules would not lead to a windfall for Mr Astor personally because he was not invested in the fund.”
But the real winner of the two-storey planning change is Vincent Tchenguiz, whose Tchenguiz Family Trust based in the British Virgin Islands is the ultimate owner of the freeholds to 239,000 flats.
Although highly indebted, this group is still the largest residential freehold owner in the country.
Ground rent income at the freeholds goes to the Goldman Sach’s founded, de-regulated pension investor Rothesay Life through a debenture, leaving Mr Tchenguiz’s Consensus Business Group with administration charges (sub-letting, building consents etc), insurance commissions … and development potential.
If only 2,390 blocks qualify for the two-storey planning windfall, and build four flats each selling at £250,000 profit, then the portfolio has increased in value by £2.3 billion.
Wallace Estates, owned by the Norfolk-based Italian Count Luca Rinaldo Contardo Padulli and whose ground rents are administered by Simarc, has the freeholds to 106,000 flats.
If only 1,060 blocks qualify for the two-storey development potential, and these flats are worth £250,000 each, the fund has increased in value by just over £1 billion.
Wallace Estates says of its freeholds that “99% of which are financed by pension funds”, but like Long Harbour the beneficial ownership is secret.
This astonishing planning give-away, which first surfaced at the Conservative party conference last autumn, has been handed over to owners of residential freeholds who failed to respond to the cladding crisis after the Grenfell tragedy.
Ministers such as Sajid Javid and James Brokenshire repeated urged building owners – the freeholders – to do the decent thing and pay to remove first the ACM Grenfell cladding and then the other combustible HPL cladding identified as a fire hazard.
Not one speculator in residential freeholds did so.
The Leasehold Knowledge Partnership repeatedly told ministers that freeholders would not, and in many cases, could not pay to remove the cladding.
The income from some of these sites is absolutely minimal and residential freeholds (pre-planning windfalls) were worth 1-3% of a block of flats: the leaseholders have the overwhelming financial stake.
Now the situation has changed.
Consider Northpoint, a self-managing site of 57 flats in Bromley, in south east London, where Mr Tchenguiz is the freeholder via Citistead Limited and where cladding remediation costs are estimated at £4 million.
Yet the ground rents are only £7,000 a year – and, as it happens, go straight to Rothesay Life.
LKP argued that it was unreasonable to expect the Tchenguiz organisation, as the building owner, to pay to remove cladding given this minimal financial stake in the building.
As it happens, Northpoint qualifies for the cladding fund, so the £4 million bail-out will be paid for by taxpayers.
But what if Northpoint also qualifies for the two-storey permitted development rule change and Mr Tchenguiz puts four new flats on top of the spanking new refurb?
That will be at least £1 million pure profit for the former tycoon who, before the 2008 financial crisis, was one of the UK’s most powerful corporate players bidding to take over Sainsbury’s.
Might the two-storey permitted development rule revive his career in the big time?
LKP has long wondered who had been cleverer over the Rothesay Life debenture on the Tchenguiz freeholds: Vincent or the generously remunerated ex-Goldman Sachs pension investors at Rothesay Life, who took out the debenture on the ground rents only but declined to buy the freeholds.
Well, this massive planning windfall may suggest an answer.