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Charity stops rent payments to homelessness investment fund in row over property standards
A charity client of a listed homelessness accommodation investment fund has not paid rent for months amid a dispute over the quality of its properties.
Home REIT, a private fund that leases more than 10,000 beds across 135 local authorities for charities to provide accommodation to homeless residents, claimed that Liverpool-based Big Help Group had not paid rent “contractually due” for the quarter to 30 November 2022.
In an update to the market, the real estate investment trust said: “The company is reviewing all options to obtain payment of overdue rent from its tenants.”
However, the charity claims that the rent is not owed, as it was required to invest its own resources to bring the properties it leased up to standard, and agreed rent waivers from the fund to claim back this cost.
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National charity Big Help Project is Home REIT’s biggest client with more than 1,000 beds, accounting for nearly a fifth of its total rental income. It claims that it struck a £5.5m rent relief deal with Home REIT last August because of the poor state of the properties it had leased from the fund.
Peter Mitchell, chief executive of Big Help, told Inside Housing he had instructed lawyers to defend the company’s position.
He said: “Big Help Project met with Home REIT in summer 2022 in London. We agreed at that meeting a rent-free period of two years that would begin on 1 September 2022. Therefore, no rent is due.”
Mr Mitchell said that properties were often handed over in a poor state and required significant investment to bring them up to a decent standard.
The portfolios usually consisted of terraced homes owned previously by “rogue landlords” and needed major works from rewiring to new kitchens, he said.
“There was not enough money being set aside to deal with capital expenditure of the buildings,” he added.
Lease agreements are understood to make the charity responsible for ongoing maintenance, but require the fund to provide properties in a good state of repair initially.
Home REIT has been under pressure since November, when a critical report by short seller Viceroy Research questioned its business model and its ability to collect rent.
In a statement, Home REIT said that the claims were “baseless and misleading”.
Lynne Fennah, chair of Home REIT, said at the time: “This is a business whose sole focus is on providing safe and secure accommodation to some of the most vulnerable in society, whilst generating shareholder value. It is with deep frustration that the board is having to spend time and resources responding to these baseless and misleading allegations.”
The Viceroy report had claimed that the REIT’s charity tenants “do not appear to be paying rent”.
It said: “Substantial quantities of Home REIT’s rent will never be collected,” and therefore “[this] is likely… to [result in] substantial downwards revaluations of its investment properties”.
In response, Home REIT said: “Home REIT’s rent is ultimately supported by central government funding and local authorities’ statutory duty to house homeless people. There are no overdue arrears in relation to amounts billed to 31 August 2022, supporting the independent valuations of the company’s portfolio carried out by [estate agent] Knight Frank LLP.”
Home REIT is one of a number of private investor-backed entities seen to be filling a gap in the social safety net to tackle issues such as homelessness.
It leases properties to charities, which then house vulnerable tenants, able to claim housing benefit at ‘exempt accommodation’ rates, meaning the rent can be much higher than regular benefit payments.
The charity then uses this cash to pay index-linked rents to the fund, which the fund uses to pay a return to its investors.
Home REIT, which is managed by fund manager Alvarium Investments, launched in 2020 after raising £240m through an initial public offering. Since then it has grown its portfolio through a series of deals.
Home REIT’s statement added that London-based Noble Tree Foundation has also withheld rent.
Home REIT and Noble Tree declined to comment.
