In fact, the development was instead 'a substandard hotel' close to Sir Matt Busby Way in Trafford, with the scheme operator having no planning permission to develop the hotel into the advertised apartment block. What's more, Primas discovered that the property had undergone no development and was, in reality, still being advertised and operated as a hotel.
It quickly became apparent, after further investigation, that the scheme operator had transferred the development to a connected company at a significant undervalue.
The law firm suspected that this was done in an attempt to remove all assets from the scheme operator so that no monies would be payable to the investors.
Primas subequently made a successful application to court for an order which transferred the ownership of the property to the investors. Currently, the investors are deciding whether they will arrange for the property to be developed into the promised apartments or whether they will arrange for the property to be sold.
Whatever happens, Primas says, the investors have at least been able to regain some of the monies which they paid to the scheme operator. Additionally, the investors have been awarded costs against the scheme operator.
Hannah Wilson, commercial litigation associate at Primas Law, said the cases the firm are currently working on involving sham property schemes in the North West appear to all follow a similar pattern, 'in that they all appear to be disused hotels which are marketed as being turned into apartments'.
"We have been instructed on multiple developments in Manchester and Blackpool, but we’re also aware of similar cases in other cities too," she said.
“Over the last 12 months, we’ve seen a huge spike in overseas investors being targeted to invest large sums of money in property schemes, with the promise of significant financial return. Schemes like this are usually an attractive, low-risk offering for overseas investors, as they come with the benefits of dual income and the security and stability of bricks and mortar assets."
She added: "However, we’ve since seen a rise in cases whereby it’s clear that the scheme operator had absolutely no intention of ever finishing the development, and/or paying the investors the funds they committed to upon signing the contract."
She said the firm's instructions were from a group of investors and 'so we set up a company for those who wished to represent the investors. It soon became apparent that the scheme operator had transferred the development to a connected company at a significant undervalue'.
"We suspected that this was done in an attempt to remove all assets from the scheme operator so that no monies would be payable to the investors," Wilson explained.
“Each case we’ve looked at seems to follow the same series of events (and looks suspicious from the outset!" she continued.
She said each scheme included very similar factors.
- The scheme operator sets up a special purpose vehicle (i.e. a limited company set up for a particular development which has limited assets) to be the forefront of the development;
- The scheme operator purchases an easily divisible property such as a hotel or student accommodation;
- The scheme operator then divides the property into rooms to sell to individual investors;
- Until all rooms are sold the investors are paid interest to give the impression that the scheme is still under development;
- Once all the rooms are sold the scheme collapses and there is no money left to pay to the investors.
Wilson says that, when it comes to police involvement in schemes like this, it’s very unlikely that investors would get any of their investment back in the first instance, so investors are typically favouring the civil route in these situations.
“In cases like this, we often are instructed by individual investors and/or groups of investors who simply do not yet know what has gone on. The instruction starts with an analysis of the documentation that they have, a review and possible site visits of the property in question and from there we ascertain the best route forward for the specific individual or group," Wilson concluded.
"There is no ‘one size fits all’ method with these matters and the sooner investors instruct legal experts, the more likely of a return. We’ve had much success in acting on behalf of these investors and are well experienced in proceeding against scheme operators. It is, however, somewhat disappointing that these scheme operators continue to con people out of their money in a UK system that off-shore investors think is a secure place to invest.”