High Court shuts down more land banks
In the eighties film Wall Street, Gordon Gekko makes an infamous speech about greed being good. It would seem though, that greed and the desperate or gullible might go hand in hand with the conduct of knaves – the knaves in this case being land banking companies.
Land banking companies buy areas of land then sell fragments of it off to investors at grossly inflated prices; they do this by inducing investors to believe that the land has planning potential. On the presumption that the company already owns the land, let’s think about a simple truth – why would they want to sell land that has development potential to others when, by hanging on to it themselves, they could keep all the gain – it just doesn’t make any sense does it?
It is perhaps easy to understand why investors are willing to be duped. Money in a bank deposit account is not currently likely to keep pace with inflation and so, urged on by the thought of huge returns, their avarice overcomes their ability to reason. Not only that, there is the kudos of being a a property entrepreneur – the ‘I’m in property’ syndrome might be perceived as being sexy. One can never condone the conduct of the brigands running these ‘enterprises’, but there are three adages that instantly spring to mind as follows:
- There is no such thing as a free lunch.
- If it’s too good to be true it probably is, and
- All that glitters ain’t gold.
The Financial Services Authority (they saw Northern Rock coming you might recall) has had these companies in the cross hairs for a while and in one of the more recent cases, the High Court has issued a winding up order against Plott (UK), which will allow a liquidator to realise any assets and distribute the proceeds to creditors. Usually, the only assets remaining are areas of land, the value of which do not reflect what has been paid by investors. Not surprisingly, the operators of such firms usually do a runner with the cash.
It would seem that Plott extracted almost £4m from UK consumers over nearly a two year period till April 2011. The FSA became involved because Plott was operating an unauthorised Collective Investment Scheme. Apparently, Plott suggested to would be investors that their investment returns would average between 200% and 300%. Even though Plott was run by duplicitous liars, one has to ask whether those who invested might have thought that these sort of returns were pie in the sky. Indeed one of their sites was in an area of outstanding natural beauty, where the chances of ever gaining consent for development was as likely as a sunny bank holiday.
In another case a world-wide freezing and restraint order has been made against European Property Investments (UK) Ltd. It seems that there was some connection between Plott and European, the latter owning two sites that Plott was actively promoting. European only apparently started operating after the FSA became interested in Plott and in a period of around two months, it managed to rake in over £600,000. Of this, the freezing order has captured £180,000, though the rest of the money has disappeared from European’s account.
Urged on by the too good to be true story, many investors have parted with ten large and in some cases much, much more. The FSA is pursuing European in a civil case for running an unauthorised Collective Investment Scheme but, because of an injunction obtained in the HIgh Court, Plott will be breaking the law if it seeks to sell any more land. The FSA has said that this is a warning to other unauthorised land banks that it can act to close them down. Wow! The FSA has stated that it is likely that some people will not get all their money back. No surprises there then.
My comment is this – in common law there is a tort called negligence and there is contributory negligence which is where a claimant has suffered loss as a result of somebody else’s negligence but did something themselves that contributed to their own losses. I dare say that these land bankers are clever and seductive but they are seeking to seduce people, in my view, who are only too ready to be seduced because of their own greed. Perhaps some of the consumers invested as a result of the ‘advice’ of Financial Advisers and if so, they too should also know better.
The last thing to mention is that I cannot be sure that all land banks are crooks – but to state the obvious, if you are considering an investment in one of them, either say no or get your solicitor or accountant to check them out first.
That leaves then the only other adage that I left out previously – it’s the one about a fool and his money.