High return property investment schemes: what you should know

We have acted for thousands of investors who were encouraged to invest in alternative property schemes, including hotels, care homes, student accommodation, storage units, burial plots and similar developments. In all cases, those investors were left facing substantial losses when the schemes failed, and we have successfully recovered many millions of pounds on their behalf.

Although these schemes are often heavily marketed as property purchases, they are rarely straightforward transactions. In practice, they tend to follow a common structure that carries risks which are not always explained at the outset.

Promises of exceptional returns

A central feature of these schemes is the promise of high annual returns.

Annual “guaranteed” income is often advertised at around 10%, but sometimes significantly higher, with some schemes promoting returns of up to 30% per year. We have also seen overall returns exceeding 300% over a ten year term, supported by buyback options or exit rights.

What investors are not always told is that these returns are frequently not linked to the actual trading performance of the development. Payments are often made from pooled investor funds, particularly in the early stages, rather than from income generated by the asset itself.

In addition, these schemes are usually operated through a central management company, which has control of the property and responsibility for distributing returns. Investors typically have no practical control over the asset they have purchased

Initial return payments may be made for a year or two, which can create confidence, only for returns to stop abruptly once funds are depleted or refinancing fails. It is usually at this stage that the developer enters into administration.

The illusion of security

These investments are commonly presented as low risk because they typically involve “bricks and mortar” and are supported by a long lease over an individual unit, for example of a room/unit in a hotel, care home, or student accommodation.

This veneer of security can be misleading. The lease often has little independent value or secondary market, and the investor typically has no control over how the property is run or how income is generated.

Many schemes are also off-plan, subject to planning permission, or require extensive redevelopment or refurbishment. Investor funds are frequently used to finance the acquisition or development of the property itself, exposing investors to the risk of delay, non-completion or developer insolvency.

The role of solicitors

Solicitors are typically involved in these schemes, which can reassure investors that appropriate checks have been carried out.

However, we regularly see transactions treated as routine conveyancing exercises, with little or no explanation of the true nature of the investment, the reliance on pooled funds, the commercial viability of the return model, or the risk of the scheme operating as an “unregulated collective investment arrangement”.

Where risks of this nature are not clearly explained before contracts are exchanged, it may be possible that the legal advice fell below the required standard.

What to do next

If you invested in a scheme promising high or guaranteed returns, involving pooled funds, a central management company, or an off plan development, and you are now concerned about your position, you should seek advice.

Where a solicitor or financial adviser was involved in the transaction, it may be possible that professional negligence played a part in the losses suffered.

How we can help

Our team at Cripps has extensive experience advising investors in these matters and can help you assess your options. Get in touch with our dispute resolution team for more information.