Regulatory Legal Solicitors said, having reviewed contracts where investors used a SIPP to access the beleaguered property fund, it believes that both the pension adviser and the SIPP itself appear “in all cases to have missed the limitation on lending where pension schemes are involved”.
According to Regulatory Legal Solicitors, the maximum that can be borrowed is restricted to 50% of the fund’s net asset (less any other borrowing). However, the Harlequin property proposition is that 30% is placed as a deposit and then a 70% mortgage is put in place at completion, with, said RLS, the 70% mortgage therefore in clear breach of the borrowing rules.
RLS reviewed just under 100 Harlequin cases involving pensions and found the average exposure to Harlequin is 80%, with some as high as 100% of investable funds.
A spokesperson for RLS said: “The Harlequin model requires 70% gearing to make it work for most investors. The limits on lending within a SIPP restricts what can be borrowed for completion. The gap between the two means in most cases that completion would be impossible to achieve.”
“We are advising investors make precautionary claims to SIPP providers and their pension advisers to protect the professional indemnity insurance position. Being the end of the queue would be a bad idea.”
Based in Basildon, Essex, Harlequin is a major purveyor of off-plan luxury resort properties in the Caribbean and other locations to investors.
As reported, the company began to attract UK and offshore financial services industry concern back in January, after the Financial Services Authority issued an alert on the company. A few weeks later, the FSA contacted providers of self-invested personal pensions (SIPPs), asking them to notify it if they have any clients invested in the firm, and pointing out to them that Harlequin was not FSA regulated.
