Airport car park scheme shows the importance of regulation

Airport car park scheme shows the importance of regulation


WHEN they first bought into an off-site car-parking scheme at Glasgow Airport, Investors appeared to be getting a pretty good deal.

In return for spending £20,000 to acquire a space in one of six car parks dotted around the periphery of the airport, Investors were promised an annual return of eight per cent in the first two years followed by projected returns of 10% in years three and four and 12% in the following two years.

At a time when £20,000 Invested in even the best cash ISAs would generate just £100 a year, payments of between £1,600 and £2,400 were an attractive proposition.

The problem is that the company managing the scheme – Group First subsidiary Park First – is not regulated to offer such Investments and so the Financial Conduct Authority (FCA) became involved.

Read more: Deadline looms for Investors seeking to exit airport carparking scheme

Park First’s solution? To offer Investors the option of either rolling their £20,000 over into a so-called lifetime leaseback arrangement that offers annual returns of 2% in addition to a dividend-bearing shareholding in Park First or withdraw their money by way of an early buy-back.

As Park First saw its rental income fall from £1.9m to £22,911 in the 18 months to June 2017 it is understandable that the company would want to reduce the amount of rent it is returning to Investors.

However, as the firm also made a pre-tax loss of £30.2 million on turnover of £17.6m in the same timeframe, it is unlikely that it would be in a position to pay a dividend to the Investors choosing the lifetime leaseback option in the near term.

While Park First has claimed that 70% of Investors have chosen to remain with the firm, Aberdein Considine solicitor David Orr said he is working with “a large number of Investors” who want to opt out instead. The issue is, Mr Orr said, that “the terms of the deal being proposed are heavily weighted towards the Investment firm”.

Indeed, Investors seeking to cash out will have to wait for up to a year to get their money back, during which time they will have to surrender ownership of the space so that Park First can resell it.

Nor will they receive their full capital back, with the amount of rental income they have already received being deducted and 2% interest being added on first.

That means someone who paid £20,000 for one parking space two years ago would see £3,200 deducted from their Investment and £400 added on before they got their cash back, resulting in a total payment of £17,200.

In addition, an Investor update released by the firm in April said that “if the Park First company buying back your lease became insolvent before completion of the buy-back or before it paid you, you would be likely to receive less than the full amount due”.

Park First was asked to comment on claims from Investors that these terms are “unfairly punitive” but declined to do so.

While a lawyer that is advising a number of Investors on how to proceed said “any sensible person wouldn’t agree to the terms of the contract”, for those that do there are few means of recourse because Park First is an unregulated entity.

Indeed, a spokeswoman for the Financial Ombudsman Service (FOS), which has dealt with a number of complaints regarding a similar Group First scheme called Store First, said it is not handling any complaints in relation to Park First.

It is likely this is because most Investors will either have bought into the scheme directly or received advice from an unregulated financial adviser, with the FOS spokeswoman noting that the ombudsman “only looks at complaints from people who were advised by a regulated financial adviser”.

“If they were advised by a non-regulated adviser or just decided to go into it on their own there wouldn’t be any comeback, unfortunately, because they wouldn’t have access to us or the Financial Services Compensation Scheme,” she added.

“People should always look to get regulated financial advice. The FCA has a register of regulated advisers and people can type the name into the website to see if it comes up or they could call the FCA.”

While that means the FOS is unlikely to help anyone who feels they have lost out by Investing in Park First, the implication is clear: unless you are a highly sophisticated Investor with plenty of money to burn, never put your cash into an unregulated Investment and when making a large Investment always take advice from a regulated financial adviser.

This has been underlined in the case of Store First, which in a similar model to Park First raised millions of pounds by selling self-storage pods that promised a rental income.

Read more: Deadline looms for Investors seeking to exit airport carparking scheme

As some Investors bought into the scheme via regulated pensions businesses the FOS and the Serious Fraud Office have Investigated it, with the UK Government last year filing a petition to have the business wound up. The matter is due to go to trial either later this year or in early 2019.

Store First, meanwhile, said it will defend the proceedings, having “now set on a course which is aimed at increasing occupancy levels of storage pods so as to increase the returns to Investors”.

“The business has seen significant improvement in occupancy levels over the last nine months so it believes it is right to continue to focus on occupancy and to continue to drive occupancy up and hence returns to Investors,” it said in a statement.

“The business firmly believes that it is not in the interests of Store First companies or its Investors for the businesses to be wound up so it will continue to support the defence of the proceedings.”



Source: heraldscotland.com

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