Harlequin Property update: 40% of investors want their money back, whilst SIPP eligibility is questioned

This week saw beleaguered Harlequin investors, gather in a series meetings run by law firm Regulatory Legal, who have also carried out a survey of investors, the results of which make interesting reading.

There have been other interesting developments, as at least one leading SIPP provider questions whether Harlequin investments should ever have been allowed to be held in a SIPP.

Survey of Harlequin Property investors

A survey of 150 Harlequin Property investors, whose properties had not yet been completed, has found 40% have asked for a refund of their investment, but to date only two have been successful.

The survey, conducted in March by Risk Warning, a law firm leading a large group of Harlequin Property investors, produced some shocking results:

• Contractual completion dates, for properties purchased through Harlequin between 2008 and 2010, had not been met in two thirds of cases
• 50% of investors who took out mortgages, which Harlequin promised to support by meeting the interest payments, said these payments were not up to date
• 40% of investors have asked for their money back, but to date only two have received refunds
• 45% of investors were told the Harlequin investments were low risk, a further 40% failed to receive a description of the investment risk

Risk Warning also said the silence from Harlequin was conspicuous and was leaving investors in a vacuum.

Risk Warning report that investments into Harlequin Property were typically made in one of three ways, directly in cash, by taking out either a mortgage or personal loan to raise the money to invest, or via a Self-Invested Personal Pension (SIPP). It is believe that around 3,000 investors ploughed £250 million into the scheme, which has been beset with problems, including:

Problems with investors receiving interest payments promised to them by Harlequin. Many investors have been left to meet loan and mortgage repayments themselves, causing real financial hardship in many cases

• An FSA alert to financial advisers, who may have been planning to recommend Harlequin Property investments to their clients
• An investigation by the Serious Fraud Office (SFO) and Essex police
• The resignation of Harlequin’s auditor, BDO Stoy Hayward
• A now postponed BBC Panorama programme investigating Harlequin Property

Commenting on the findings of the survey, Risk Warning’s Gareth Fatchett said: “What is clear to us is that investors are unnerved by the lack of information from Harlequin, causing fear, doubt and uncertainty about the safety of their investments. We believe that the responses we have had to our survey are indicative for thousands of Harlequin investors up and down the country.”

Fatchett continued: “We are now pressing ahead with claims on behalf of an additional 20 Harlequin investors seeking refunds due to missed completion dates. Amongst a whole range of accounting and governance issues, questions we are asking include:

• Why SIPP investments appear to have been made before the land was owned by Harlequin?
• Why agents seem not to have confirmed the land position or obtained information on the Caribbean company before they sold the investments?
• Why due diligence undertaken by SIPP trustees and advisers appears not to have included basic checks into Harlequin’s accounts for their Caribbean companies?

Concluding Fatchett said: “There is no time to lose, particularly if you are an investor in Harlequin Property SVG Ltd, Buccament Bay Resort or other Harlequin resort development companies. We strongly recommend that you review your legal position now so that claims can be set in motion to safeguard your money. We are asking investors to complete a short questionnaire and provide relevant information about their Harlequin investments. Risk Warning will review this information to help us determine the next steps, including possible professional indemnity insurance claims.”

The Risk Warning website can be found by clicking here.

In an effort to improve communication, Harlequin Property has invited all investors and agents to one of two ‘Open Days’ to be held in Manchester and Basildon.

Harlequin stops construction in Barbados

It was reported this week that Harlequin has brought a temporary halt to construction on one of its flagship resorts in Barbados.

The pause on the H Barbados site has been blamed on an on-going legal battle in Ireland between Harlequin and a former contractor on the Buccament Bay resort, in which it is alleged millions of dollars has been misappropriated. The allegation has been denied by the developer and the court case, which started in February, has yet to be resolved.

Speaking to FTAdviser, a spokesperson for Harlequin also confirmed that work on another resort, the Merricks, again in Barbados, will now restart following issues over planning permission.

Harlequin were quoted as saying: ““Harlequin is delighted to announce that last week it received full planning permission for The Merricks Resort project in Barbados. There are normal conditions attached to the permission and our team is now working to ensure we have full compliance to allow us to commence works.”

Harlequin hits back to counter claims of SIPP provider

Harlequin hit back this week, to counter claims by one leading SIPP (Self-Invested Personal Pension) provider that the investments should never have been allowed into pensions.

Speaking to FTAdviser John Fox, Managing Director of Liberty SIPP, said he believed SIPP providers should not have accepted Harlequin Property investments as they would be classed as residential property under the SIPP rules.

John Fox was quoted by FTAdviser as saying: “A hotel room is a place you sleep, wash and get changed whereas a villa allows you to do more than that and therefore falls into the definition of a dwelling.”

Fox continued: “In some cases, the rules were misinterpreted, saying that it was a villa in a resort that could only be booked through a travel agent; that the rooms didn’t have kitchen facilities and therefore fulfilled the criteria of a hotel.”

“We felt that there was a degree of poetic licence in all this.”

However, Harlequin hit back, saying that the view expressed by Liberty was “mistaken”, as buyers have no right of occupancy and nor do they own any of the fixtures and fittings.

The Harlequin spokesperson said: “The appearance of the Cabanas at Buccament Bay Resort are villa-esque in style but this does not detract from their use as hotel rooms because the properties have no kitchen and bear no other resemblance to a ‘dwelling.”

“Furthermore, please note that each SIPP contract clearly states that the Buyer has no right to occupy the unit (obtain a defined benefit) and no right to ownership of the chattels (fixtures and fittings) in the hotel room.”

The spat comes on the back of claims by some leading experts that Harlequin investments could fall foul of the SIPP borrowing rules .

SIPPs can borrow up to 50% of their value, however it is believed that the majority of Harlequin contracts, which involved borrowing, worked on the basis of a 30% deposit, with the balance of 70%, provided via a mortgage; which if true, would not be possible in a SIPP.

If you are a Harlequin Property investor you will naturally be concerned about the recent developments. The investors we have spoken to have had mixed emotions, however all have wanted to take some form of action.

We would recommend that Harlequin investors continue to monitor the situation whilst completing the Harlequin Property Serious Fraud Office questionnaire , which can be found by clicking here and also visit the website set up by Regulatory Legal: www.harlequininvestorgroup.co.uk for more news.

You can also contact our team of Independent Financial Advisers on 0115 933 8433, alternatively enquire online or email info@investmentsense.co.uk