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”?

http://ukcatalogue.oup.com/product/9780199589081.do

We may never find out.

Cameron's Marconi Scandal

When a major issue appears to arrive from nowhere it is often the case that it was there all the time under the nose of those involved and you could not or would not want to see it or to deal with it or to admit that it could become serious.

Cameron now has a major financial blow out on his hands that is not going to go away and may become impossible to avoid. A casualty could be Baroness Hanham, CBE, at present Parliamentary Under Secretary of State in the Department for Communities and Local Government (DECLOG, I shall call it).

On 14 February 2011 (see picture above) in reply to a letter of 4 October 2010 from Nick Gibb M.P. expressing contrition for a Departmental oversight (there seem to a lot of them about in the government these days) she asserted that the “pro-active and professional and positive approach by professionals in the sector” meant that there was no need for the government to look at what was going on in the leasehold part of the property market.

By implication despite other requests for meetings from Carlex, The Campaign Against Leasehold Exploitation, they would not be necessary as clearly in they eyes of DECLOG, all was for the best in the best of all possible worlds.

Within days two of the principal financiers in that sector have been arrested by the Serious Fraud Squad, together with others, and a major property company owned by them, Peverel, has been taken into administration causing mayhem.

That is not all, the Baroness was and perhaps still is prominent in her local Conservative Party as the former leader of Kensington and Chelsea Borough Council, one of the central local parties in the whole Conservative Party organisation and very influential.

Amongst the local population are members of the same family within whom arrests have been made. Moreover it has been reported that they are contributors to Conservative Party funds in a way that allows access to the great and good.

Additionally, given the complex web of connections amongst many people arising from the financial and celebrity culture of this part of London it would be difficult to avoid contact if only at a basic social level. Quite how far that extends around the Conservative and New Labour parties can only be guessed at.

As the laws relating to privacy combined with the protection allowed to those investing in secrecy jurisdictions (see Nicholas Shaxson “Treasure Islands” and Tax Justice Network web sites) anything is and will remain a mystery. We can never know who has interests in who else and what.

Baroness Hanham must wish that she had listened to those who have serious anxieties about what is happening in the leasehold property sector and instituted a review of the state of the law and its application. Is it too late for her to do so?

Moving on, both she and others may not be aware of the implications of any disaster in parts of the leasehold sector. The current arrangements under the 2002 Leasehold Act were instituted by lawyers, of lawyers and for lawyers, one of the defining characteristics of New Labour.

One striking feature is how the appeal etc. and regulation was loaded in favour of the big companies with their legal teams against the ordinary person. This system is no longer working.

The headlong redevelopment schemes of New Labour have resulted in extensive flat developments across the country. But the rapid rise of service and other charges may well impact on sales where incomes are tighter. In many places there seem to be a good many flats unoccupied. According to some reports there are instances of them being impossible to sell.

The leasehold retirement flat sector is one where existing and potential buyers are already under serious pressure arising from the current situation. These flats, many of which were originally intended for “active retired” are now housing large numbers of the very elderly many of whom need care and support.

In the meantime, hospitals want to end bed blocking and reports of so many deaths from malnutrition and dehydration make disturbing reading. There are many care homes that are struggling; one report has a major company in trouble. The number of places in care homes has fallen significantly over the last decade for a variety of reasons.

Add to this the rising number of dementia cases for whom there are few places and in some parts of the country virtually none and what has happened is that many retirement flats have become almost partial quasi care homes serviced by a rapidly changing band of peripatetic carers.

In NHS establishments, care homes and amongst carers for a variety of reasons there are simply not the skills amongst many to deal with very real problems. Also we will soon be at the point where there are not enough people to meet the demands that will be made.

If sales of retirement flats collapse because few can afford the rapidly rising annual charges and the extras now demanded by their property service management companies then just where are all the retired who can no longer cope going to go to? Just what demands will fall on all the agencies involved?

This week “Private Eye” argues that there is a comparison with the BCCI Affaire, my guess is that there is more of the smack of The Marconi Scandal.

Choose your own, there are enough of them in the history books.

The Economics Of Extraction

Outside the supermarket have you sometimes helped that nice old lady from the retirement flats along the road with her shopping? She now could be in the hole for debts of into six figures through absolutely no fault of her own or her family.

It is an astonishing situation that typifies the sheer scale of the mess in both our economy and the financial sector, allegedly its motor.

Essentially, a major part of our housing stock; that of the leasehold sector is embroiled in the financial turmoil concerning a family of financial speculators.

See the following links for the story, the first about some problems the second about the outcome of the calling in of debts by the banks:

http://www.guardian.co.uk/money/2011/feb/12/peverel-tenants-fighting-back

http://www.guardian.co.uk/business/2011/feb/13/tchenguiz-property-kaupthing-peverel

The banks have now steeled themselves to call in the debts and take over the assets pledged as security. It seems that these are not enough to cover the debts and that the banks are likely to attempt recovery from the clients of the companies. The sums involved are huge. The OFT has identified paper of £442 million in one small part of the conglomerate alone dealing with freeholds.

What was once basic work of managing and dealing with the routine of taking care and maintaining flats and similar housing has become an arena of almost gladiatorial contest. The incomes derived from it have been used for major leverage, debt creation and speculation.

It has sparked the creation of The Campaign Against Residential Leasehold Exploitation, a voluntary unsubsidized organization attempting to defend the elderly and vulnerable, which found an astonishing amount of work to be done, see:

http://www.carlex.org.uk/

Carlex claims over two million searches on Google and a growing rate of hits a day on its site, now said to be 5000 a week and rising rapidly. What some of the cases are uncovering go beyond error or poor management. There are real questions about the stance and attitude some of these companies take to their clients.

Whilst politicians go on about competition and choice there are large numbers of people being denied this and are being subject to charging on a basis where all the tricks of the trade are imposed along with aggressive legal tactics.

This has come about within the last five to ten years notably in the retirement sector. It is the direct product of Government “light touch” regulation and easy going relations with some of the major financiers involved. Which politicians have been entertained on whose yachts? Which parties are being funded by the people in question?

So when taxpayer’s money and that of the Bank of England goes to the banks it has been propping up a small group of oligarchs who have been continuing to extract money without regard for the consequences. This money is not retained in the UK nor does it result in much revenue to the Exchequer.

In the case of the retirement sector this is now a critical part of the care provision for the old. If this collapses as a result of all the mayhem the government’s ideas for care in the community could face catastrophe.

While the leasehold sector descends into turmoil and the scale of the problems begin to escalate with incalculable implications for the housing economy, for the oligarchs the party goes on.

And you are paying for it and are going to pay a lot more.