Washington set to buy Silverstein's WTC lease

The US government is poised to buy the lease on the destroyed World Trade Centre from the property magnate Larry Silverstein in an attempt to seize the initiative in the increasingly bitter dispute about the future of the site.

The federal government has become dissatisfied with Mr Silverstein's failure to formulate an effective plan for what should be built on the site of the collapsed twin towers.

As Mr Silverstein paid for almost the entire $3.5bn (£2.4bn) 99-year lease on the World Trade Centre through bank loans, the US authorities have also been negotiating with the consortium of bankers that in effect controls the lease. The banks include GMAC, the financing arm of General Motors, which lent Mr Silverstein $563m.

The US government would have to get insurers, including a number Lloyd's of London companies, which wrote the policy on the twin towers to agree to a deal. Lawyers for the US federal government have been sounding out insurers with the most exposure since last week.

Most of the parties want to reach an agreement in the next few weeks in order to avert a key court case due to begin on 12 November. This case will see Mr Silverstein and the insurers haggle over the total payout on the insurance policy, with the New York property millionaire insisting he should receive up to $7bn because the two planes ploughing into the twin towers was two events. The insurers say it was only one attack, bringing down the total he could claim to $3.5bn.

The insurers want to avoid this wrangle being played out in court because they know Mr Silverstein's lawyers are preparing emotionally charged arguments to use before the New York jury and do not want to be portrayed to the public as unwilling to pay out.

One insurer close to the negotiations said: "We are confident that we are correct, but when you have got the risk of an unpredictable jury involved, we would love to get out."

The insurers would probably agree to pay slightly more than £3.5bn, the total value of the World Trade Centre policy, to the government in return for avoiding the court case.

Bankers who financed Mr Silverstein are also thought to be keen to agree a deal because they believe that if Mr Silverstein loses the court case, he will in effect be bankrupt, making the chances of them seeing any further repayments on their loan very slim.

A City source said: "The banks will probably cut their losses and decide a repayment of, say, 90 cents in the dollar from the government is better than pressing ahead with Mr Silverstein."

Mr Silverstein appears to be the main sticking point to the deal. The US authorities are thought to be of the opinion that Mr Silverstein should not be paid anything for the lease, but simply see his bank debts wiped out. Mr Silverstein is thought to be holding out for a deal which would involve him being given a favourable lease on some office space at the JFK and LaGuardia airports, which are owned by the Port Authority of New York and New Jersey. The Port Authority, which is a government body, also owns the land that the trade centre was built on.

A spokesman for Mr Silverstein said that his organisation had not been contacted by any government agency concerning acquisition of the lease. : "There is no deal on the table. If someone offered something concrete then of course we would have to consider it," he said.