BES investors angry as fees add to losses

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The Independent Online
MANY investors in Allied Dunbar's Link Assured Homes business expansion schemes facing losses because of falling property prices are angry that high management fees are increasing those losses.

In some cases, the property management fees have outstripped the rental income provided by the assured tenancy schemes. About 2,500 people invested pounds 48m in the 589 assured tenancy schemes. The schemes are coming to the end of their five-year life and the properties are going to be sold. Any loss on the management of the schemes will be added to losses on the property sales. Allied Dunbar estimates that investors will lose up to 20 per cent of their original investment.

Bob Freeman put pounds 40,000 into four different schemes in Evesham, Glasgow, Manchester and Dorchester in 1989. 'All of the properties have earned respectable rents over the four years, but all of it has been used up.'

Over the last four years, the four properties that Mr Freeman has invested in have earned pounds 42,952 in rents. The total management charges reached pounds 61,065, leaving a loss of pounds 18,113 to be divided up among the investors.

Another investor, Selby Martin from Shrewsbury, invested pounds 10,000 through the scheme. He said: 'Last year's account for one property shows rental income of pounds 4,300, but pounds 2,544 was absorbed by admin expenses and pounds 3,496 went on redecoration, maintenance, depreciation and insurance.' The property was run at loss of pounds 1,740.

The Link schemes were set up to take advantage of tax relief on interest on loans taken out to invest in individual companies. So each individual property, typically bought for pounds 70,000, had to be run as a separate company - with its own directors, and annual audit.

The prospectus shows that 15 per cent of the rental income is taken up on the property management side. Other fees include Allied Dunbar's annual fee, which started off at pounds 600 per scheme at the outset. Allied Dunbar said it would be rising to pounds 900 this year. Auditors fees of pounds 350 and director's fees, which average about pounds 60 per director, add to the overall costs.

Allied Dunbar is planning to cut its charges by up 50 per cent for the last year for 100 of the worst-hit schemes.

Investors have to pay the first 5 per cent of losses. Then insurance will pay for the next 25 per cent.