Imagine investing your savings, maybe even your pension, into what looks like a solid, bricks-and-mortar property deal. You're told you'll get a guaranteed return of 8-15% a year. The paperwork is registered with HM Land Registry, so it feels official and secure. What could go wrong?

As thousands of investors across England and Wales discovered, quite a lot.

This insight by Corporate & Commercial Solicitor, Alastair Dobbie, explains what happened, why the law is changing to deal with it, and what it means if you're an investor, a leaseholder, or simply someone buying a property that's part of a wider investment scheme.

FCA v Forster: Why Care Home and Hotel Investment Schemes Should Have Been Regulated 

After the 2008 financial crash, savings accounts were paying next to nothing in interest. So when investment companies started offering guaranteed 8-15% returns on care homes, hotels, and student accommodation, people understandably took notice.

Here's the catch: many of these schemes worked the same way as a Ponzi scheme, a con named after the fraudster Charles Ponzi, where money from new investors is used to pay "returns" to earlier investors, rather than the investment actually generating that money itself. It works fine until new investors stop coming in, at which point the whole thing collapses.

The typical set-up looked like this: one company owned the building outright (the freehold), and it then sold long-term rights to individual rooms or units to investors (leaseholds). On paper, each investor owned their own little slice of the building. In reality, when the operator ran out of money, the whole building became one big legal tangle - too complicated to sell, and too valuable to simply write off.

A recent court case, FCA v Forster, confirmed that many of these schemes should have been registered and regulated as a Collective Investment Scheme - essentially, a pooled investment that the Financial Conduct Authority (FCA) is supposed to oversee. Running one without proper authorisation is against the law.

The trouble is, nobody had been keeping that eye on things. Regulators, media investigations, and disgruntled investors all started raising red flags at roughly the same time, most notably around the collapse of a scheme called Northern Powerhouse Developments in 2019.

What Happens When a Property Investment Scheme Collapses

When a scheme goes bust, an insolvency specialist (called an administrator) is brought in to sort out the mess and recover as much money as possible for creditors.

Naturally, the easiest way to raise money is to sell the building. But there was a problem: the investors' leases were still legally valid and registered at the Land Registry. Could the administrators simply sell the building as if those leases didn't exist?

Alastair Dobbie represented investors in exactly this fight, and the courts agreed with him, twice. Leases that are properly registered can't just be brushed aside by an administrator trying to make a quick sale. That was good news for investors, but it created a new problem: a standoff.

Administrators controlled the buildings, investors held the leases, and neither side could move forward alone. Many properties, already struggling through Covid, were left standing empty and deteriorating, sometimes for years.

The Qualia Case: How a £53 Million Care Home Investment Scheme Was Restructured

Alastair took a different approach with Qualia, a £53 million care home scheme that had collapsed under similar circumstances.

Rather than fighting an administrator, he worked with investors and a newly appointed, more cooperative administrator to find a genuine solution. The proposal: merge the freehold and all the leases back together under one legal umbrella, using powers in the Financial Services and Markets Act 2000 - the same law the scheme had originally broken by operating without authorisation.

On 28 September 2024, the court approved this approach, allowing the outstanding leases to be brought together with the freehold, provided a sufficient majority of investors agreed. This was a genuinely new use of the law, and it matters well beyond this one case.

Buying a Leasehold Investment Property? What to Check Before You Exchange 

If you're an investor caught in a scheme like this:

There's now a realistic path to actually recovering value from a property that might otherwise sit empty and worthless for years, rather than being stuck in permanent limbo with an administrator.

If you're buying a leasehold property that's part of a wider letting scheme, for example, a holiday let, a managed student flat, or a share in a care home investment, it's now more important than ever to check whether the wider scheme could be classed as an unauthorised Collective Investment Scheme. If it can, your lease may not be as untouchable as you'd assume. This is exactly the kind of risk our conveyancing team checks for before you exchange contracts.

If you're a leaseholder more generally:

This case is a reminder that leasehold rights, while still strongly protected in ordinary situations, are not completely immune from being unwound by a court, particularly where fraud or improperly run investment schemes are involved.

Recovering Value from Collapsed Property Investment Schemes 

There's a genuine silver lining here. Care homes with real residents who need ongoing support can be handed to proper operators. Hotels and empty student blocks can be sold on and put back into use, instead of standing empty and decaying. Money that's been tied up for years, often representing people's life savings, has a real chance of being recovered.

But it's a powerful legal tool, and like any powerful tool, it depends on how it's used. Used properly, with real consensus among investors, it can unlock value that's been trapped for years. Used carelessly, it risks investors being pressured into decisions that don't serve their interests.

If you're worried that you may be affected by an unauthorised Collective Investment Scheme, or just want to see where you stand, get in touch with Alastair Dobbie today via a.dobbie@woodstocklegalservices.co.uk or by completing the form below.