Troubles mount for developer FreshStart - special report by James Graham : thebusinessdesk.com
DEVELOPER FreshStart Living has broken planning and fire safety rules at a residential scheme in Stockport, as problems mount across the group.
Stockport Council issued a planning contravention notice last month over breaches at Mac Court in St Thomas's Place while Greater Manchester Fire and Rescue Service has separately issued an enforcement notice over fire safety issues.
The latest action comes as the company faces a winding-up petition over a scheme in Nottingham and has five county courticon judgements outstanding worth a total of £31,400. Its Trafford Press development is now in administration and several subsidiaries have been wound up this year following legal action.
In an interview with TheBusinessDesk.com, FreshStart's chief executive Charlie Cunningham said the root cause of the group's problems stemmed from issues with the Trafford Press development in Manchester, and claimed a law firm had made mistakes with contracts that led to sales falling through. This caused funding problems and drained cash from the parent company, Empirical Property Group, said Mr Cunningham.
Administrators at accountancy firm Leonard Curtis have now been appointed to the subsidiary that owns the Trafford Press, FSL Properties Trafford Press, and FreshStart is suing its former lawyers.
Mr Cunningham, who would not name either the firm he has instructed or the firm he is pursuing, said he hoped to win the case and restart the scheme with the proceeds. He also expects creditors to be repaid at Trafford Press and at other schemes.
Trafford Press is one of several FreshStart schemes where investors have been trying to get their money back. Elsewhere tenants have complained of unfinished buildings and non-existent maintenance. In Stockport around 20 residents at Mac Court, a converted mill, complain it was never properly finished. They say windows leak, communal areas are not completed, the lift shaft is boarded up and there is a vermin infestation.
They compiled a dossier with a list of 35 faults and problems which prompted the intervention by the authorities. The residents are now seeking to form their own management company to replace a FreshStart subsidiary and are questioning how the building was signed off by the local council.
One of the residents, former FreshStart employee Lauren Dean, said: "All we want is some communication from them to advise us what's happening. There is a smell of sewage because there are drainage issues, they've known for a year, but don't do anything. They don't reply to emails, there's no maintenance, no update, nothing. All we want is to be able to live in peace in a building that's finished, that's not leaking and where the fire alarms work."
FreshStart launched a number of schemes across the country several years ago, marketing them cheaply to buy-to-let investors and promising good returns. Many were advertised as "student pods" - a student room for under £30,000 with guaranteed rental income for several years.
The action in Stockport follows a case in Manchester where people who had bought FreshStart student rooms at Montgomery House in Whalley Range took charge of the building's management and sued a FreshStart vehicle over unpaid rent. Elsewhere disgruntled investors have taken legal action against the company over the failure to return deposits at schemes where work did not start, or was never completed. In at least one case deposits were taken for a property FreshStart did not own.
The business was set up in 2009 by Salford-based Andrew Camilleri who was declared bankrupt in 2011 over property loans totalling £9m, including interesticon. FreshStart is owned by Empirical Property whose majority shareholder is Alan Pierce, one of Mr Camilleri's relatives. Mr Cunningham holds 10% of the shares. He has a background as a City broker and was drafted in last year to prepare FreshStart for a stock market flotation. He is an Empirical director along with construction chief Phillip Wright, and Christian Yates who works as an adviser at City investment firm Shore Capital.
Referring to the problems at Mac Court, Mr Cunningham said: "It is finished apart from two basement conversions. The space next door is being developed but we haven't be able to embark on any new developments because we haven't had the funding to do so.
"We've had a serious blow with Trafford Press. We're cash restrained and we've cut costs. We're operating with a smaller staff and trying to make sure everyone's looked after.
"The group has been putting cash into Trafford Press, over £1m without any return. That has affected other companies within the group and we will be seeking arrangements with creditors to protect those companies. An offer will be made and any offer will be the full sum. We're not looking for any creditors to get a reduced sum."
He added: "We've sold over 1,000 units in the last couple of years. Yes, there are people complaining and bits haven't been done properly, but 98% of people are happy with their investment and have done well out of it. Anyone who bought a unit will be getting a decent return and will make money if they sell."
The problems associated with some of FreshStart's schemes are listed below.
Trafford Press was a high profile FreshStart scheme which involved convertingTrafford Press the former buildings of the Veno drug company and the Trafford Press on Chester Road. In 2011 the plan was for around 116 apartments across old and new buildings. Some renovation work has taken place on the original buildings and there are tenants, but building work stalled, leaving just the steel frame of the new buildings.
A FreshStart vehicle, Trafford Press Construction, is now in liquidation after a successful winding-up petition by the Wetherby-based insulation firm Encon. Investors who paid deposits but have not seen their flats materialise are now understood to be preparing legal action against the company.
Mr Cunningham said he expects all creditors to be repaid in full, either from the proceeds of FreshStart's legal action against its lawyer, or if the administrators find a buyer for the building. But a lender called SKPB Services holds a charge against the site and as a result will be paid first.
He said: "If the administrator decides to sell what's left and raises enough money to pay back creditors, everyone will get paid out of that. What we're working towards is getting a settlement to take the company out of administration and pay people, and continue the build."
empress millEmpress Mill, a stone's throw from Trafford Press, was taken on by FreshStart in 2011 which planned to develop 100 apartments across two blocks, a converted mill and a new six-storey building next door.
It was expected to be complete by this year but the conversion is unfinished and the new block was not built. However, some of the flats are occupied. One investor won a £5,000 county court judgement against the firm in the summer over a deposit that was not returned.
Victoria House Halls, Nottingham
FreshStart announced it had bought a 30,000 sq ft office building in central FreshStart planned Victoria House Halls scheme in NottinghamNottingham from Capital Shopping Centres in 2011 which it planned to convert into 157 "student pods". Work on the project was due to start in January 2012 with completion expected in September in time for the start of the 2012-2013 academic year.
Pods were sold to investors who placed deposits of around £2,000 on each room, but FreshStart did not own the building and had no planning consent. Capital Shopping Centres, now called Intu Properties, confirmed it exchanged on the sale subject to planning consent earlier this year. Plans were submitted in April, but later withdrawn. Last month FreshStart's chief executive Charlie Cunningham told TheBusinessDesk, "It's taken much longer than we hoped it would but there's no question of the scheme not going ahead".
But investors are trying to get their money back. One, London-based Roger Walters has issued a winding-up petition against FreshStart over a £20,000 deposit. Chinese investor Rosa Wong has been to FreshStart's Salford office several times to recover £15,000. On one occasion she went with a Chinese estate agent who was owed £4,000 in commission for marketing FreshStart properties overseas. He recovered the debt but Ms Wong was told the scheme was still going ahead. In search of help she went to Salford City Council, the police, Trading Standards and The Property Ombudsmanicon and felt she was "kicked around like a ball". She has now issued civil proceedings.
She said: "I planned to invest in the real estate market in the UK, but after the issue with FSL and the experience of complaining to different official departments I changed my mind and put most of my money in the States. Many real estate agencies in my city never trusted British companies again because they lost money and didn't get commission from doing business with FSL. They have turned to the property markets in other countries, just as I did."
Last week Mr Cunningham admitted it had been a "difficult" scheme because of the building's layout. He said the planning application had been withdrawn because it required amendments, "but we're doing our best to get it through".
Montgomery House, Manchester
FreshStart Livings Montgomery House (rear)FreshStart bought Montgomery House, a former YMCA building in Whalley Range, south Manchester, in 2011 to turn it into 240 student pods. The work went ahead but investors sued FreshStart over unpaid rents which were guaranteed for a set period as part of the deal. They claimed £200,000 but settled for £131,000 which FreshStart's parent, Empirical Property, paid in April.
Last year FreshStart sold the freehold to Stratford-upon-Avon-based property group Marden Ltd for £930,000 and its management company was wound up following a separate action by investors.
TheBusinessDesk understands another case is being prepared against FreshStart by investors whose student pods were turned into communal kitchens in order for the block to comply with Manchester City Council's HMO (House in Multiple Occupation) rules. One investor lost three apartments in this way, for which she paid a total of £72,000. Mr Cunningham would not comment on this situation due to the pending legal action.
On the matter of guaranteed rents Mr Cunningham said there had been "delays", but he didn't think, "many people were behind on rental guarantee payments".
Colonnade House, Bradford
This FreshStart student scheme at Provident Financial's former headquarters inCGI of Fresh Start Living's Colonnade House Sunbridge Road, Bradford, was shut down in November for breaching fire regulations.
West Yorkshireicon Fire Service issued a prohibition notice saying the fire escapes and alarms were inadequate. The notice has since been lifted.
FreshStart acquired the nine-storey 1960s building in 2011 and was converting it into 200 student rooms. At the time of the inspection only the top three floors had been completed and were occupied by up to 70 students who were forced to move out. In the summer Bradford University and the students' union warned students not to take rooms at the building for the 2013-14 academic year, but retracted a statement after protests from FreshStart.
Last week Mr Cunningham said the scheme was "practically complete". Earlier this month the Paisley Daily Express reported that a FreshStart student scheme in the Scottish town had been shut down for breaching fire regulations and building laws. In an echo of Colonnade House, fire safety officials evicted tenants following an inspection and only the second of five floors had been completed.
Bispham House, Liverpool
bispham houseThis 1960s block in Lace Street close to the city transferred from council ownership in the 1990s. It was previously the subject of a renovation by FM Developments which went into administration in 2009 before the work was finished. FreshStart acquired the site from administrators and sold 78 apartments to investors. But as with Mac Court the building was not completed and guaranteed rents have not been paid.
FreshStart has now sold its freehold interest and investors have ousted FreshStart management company, opting for one of their choice in the same way as investors at Montgomery House in Manchester. A source told TheBusinessDesk: "Landlords have paid more to bring it up to standard and they have not received rents. FreshStart always said it would be completed and it never was."