Harlequin property update: Investors face up to forfeiting deposits

Harlequin Property

Update Harlequin 150pxAs the Harlequin Property saga rumbles on, new research reveals investors could potentially lose millions of pounds in forfeited deposits.

Central to the Harlequin Property proposition was “guaranteed mortgage finance”, which would allow investors to complete their purchase, having put down a 30% deposit.

“70% guaranteed mortgage”

Many investors used their own savings to fund the deposit, some used their pensions having transferred to a SIPP (Self-Invested Personal Pension), whilst others borrowed money by remortgaging their home. We have even spoken to a number of investors who took out a personal loan or borrowed money on credit cards to invest.

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However, to complete on the purchase new research shows most investors would have required the additional finance promoted by Harlequin.

In a letter dated October 2008, seen by Investment Sense, Daniel Dalligan, Investments Manager at Harlequin Property, said: “Although the wording in the contract regarding the 70% mortgage may not be to everyone’s liking, this is terminology used by our lawyers and approved by a lawyer representing over 200 of our clients.”

The letter continues: “However, it is made quite clear in all the Harlequin literature and advertising that a 70% guaranteed mortgage is available. This is because Harlequin are fully aware that it is not possible for clients to raise mortgages in the Caribbean so the Harlequin business model, and the fact that there is no borrowing on any of the projects, will enable funding to be raised and this will be passed onto our investors.”

Another document, dated 14th December 2006, states: “Due to the significantly discounted off-plan contract price and the capital appreciation during the construction phase, it is anticipated that the £200,000 purchase price (in the example given) will have grown to a property valued at completion of circa £325,000.”

“At this point a 70% loan to value guaranteed mortgage is available and therefore you will be able to borrow up to £227,500.”

Unlike the letter from Daniel Dalligan, this earlier document does at least contain the caveat: “Subject to status and conditions apply.”

No mention is made in either document of the fact SIPPs can only borrow 50% of their value, effectively limiting the loan to value available to 33%.

Harlequin Property completions

However, it now appears no “guaranteed mortgage finance” is available, leaving many investors unable to complete on their purchase.

Worse still, some investors have recently received letters from Harlequin requesting completion. One such letter states: “If we do not receive payment immediately we are instructed that the developer is considering taking legal action against you to obtain an Order for Specific Performance to ensure you make the final payment promptly or, alternatively, applying to the Court for forfeiture regarding your intended property purchase. You therefore run the risk of losing your property and your payments to date if we fail to receive completion payment from you immediately.”

In a statement to Investment Sense, a spokesperson for Harlequin Property said: “Finance was promoted as “subject to status”. In spite of Harlequin’s best efforts, to date it has proven extremely challenging to put the intended finance in place due to the global recession and other factors, such as the defamatory campaign by Jeremy Newman, formerly of Wilkins Kennedy accountants.”

“We cannot disclose specifics due to confidentiality, but Harlequin has been involved in discussions with a number of Caribbean banks and other institutions. Whilst finance has not been forthcoming to date, Harlequin continues to pursue it.”

The request to complete “immediately” is at odds with a recent statement from the Financial Conduct Authority (FCA) who urged investors considering completing on their purchase to “proceed with caution”. The statement continued: “We recommend that you contact an appropriately qualified financial adviser and obtain legal advice from lawyers in the country where the property is located before proceeding with an investment in a company in the Harlequin group.” (Source: FCA)

It appears some investors may be facing a double blow, unable to complete due to the lack of “guaranteed mortgage finance”, causing them to potentially lose their deposit if legal action is taken against them.

Commenting on the situation, Gareth Fatchett of Regulatory Legal, said: “Investors should contest any action bought by Harlequin Property, or face up to the prospect of losing their deposit.”

Regulatory Legal Harlequin Property “Guaranteed Finance” Representation Survey

Research undertaken by Regulatory Legal, has shown how important the promise of “guaranteed mortgage finance” was in convincing people to invest in property sold by Harlequin.

The Harlequin Property “Guaranteed Finance” Representation Survey of 292 investors, conducted by Regulatory Legal, found:

  • 98% of investors would have been unable to complete without mortgage finance
  • 95% of investors were not aware that failure to complete, by not paying the additional 70% of the purchase price, could lead to their deposit being lost
  • 96% of investor respondents relied on the finance being “guaranteed”
  • 99% of respondents disagree that the “100% Finance Scheme” was merely an advertisement and not a promise

The full survey, including comments from investors can be found by clicking here.

Responding to the Regulatory Legal survey, a spokesman for Harlequin said: “The Regulatory Legal survey covers less than 5% of Harlequin purchasers, although we have seen no evidence that they are in fact Harlequin purchasers, and it is disappointing that the firm is yet again seeking publicity at a time when Harlequin is focusing on restructuring the business for its investors.”

Harlequin continued: “Completions are a contractual obligation upon delivery of the finished property and are essential for Harlequin’s progress; however, we are aware that, due to changes in their own financial circumstances, some clients are wishing to delay their completions, so they are being moved to properties with later completion dates.”

The survey reveals just how serious the situation is for many Harlequin investors. It is believed Harlequin took around £400 million in deposits from investors; if the figures from the Regulatory Legal survey are accurate, investors stand to potentially lose hundreds of millions in forfeited deposits if they are unable or unwilling to complete their purchase.

Are you a Harlequin Property investor?

If you are a Harlequin Property investor you will naturally be concerned about the recent developments.

If you would like to talk through your options you can also contact our team of Independent Financial Advisers on 0115 933 8433, alternatively enquire online or email info@investmentsense.co.uk