Watch out for this landbanking scam

This scam offers big returns for investing in plots of land...

It was bad enough when Yorkshireman Billy McNaught handed over £60,000 of his savings to a landbanking firm which promised him big and speedy returns if he invested in plots of around one-tenth of acre in a field.

He was told that the agricultural land would almost certainly be rezoned as residential land on which houses could be built – multiplying the value of the site 10 or 20 fold.

These purchases were back in 2008 – and needless to say, they were a waste of money. Landbanking has been around for the best part of a decade now – and there is not a single recorded instance of anyone profiting from it, other than those promoting the scheme. These people pay around £10,000 an acre for farmland – and then sell it on for approximately £100,000 an acre. Of course, there is no law against dramatically overpaying for land.

Usually, one call to the local planning authority about the plot in question produces responses such as “never”, “it floods all the time” or “there are no roads or any planned so how can anyone live there?” Victims are, however, warned by landbankers not to contact the council for the area “because that will alert the planning authorities and local people”.

But if the original £60,000 loss was not bad enough, Mr McNaught was then caught for a further £100,000 in what can only be described as a classic “recovery room” operation. A recovery room is where one firm promises to help you get back money lost elsewhere – provided you send this second company a further slice of cash.

Billy McNaught is 74 and still working as a removal van driver. He is happy for his real name to be used because he wants to warn others of how he has lost £160,000 – virtually all of his savings. He contacted me earlier this week to tell of how he had lost a fortune in two landbanking schemes.

Mr McNaught's first brush with landbanking was in late 2007 when he was called out of the blue by Commercial Land (previously known as European Land Sales Partnership). Mr McNaught later discovered his details had been handed over by a friend who had previously invested £10,000.

Commercial Land – and its predecessor ELSP - had been the subject of warnings in The Guardian, Mail on Sunday, BBC and in Australia where government backed consumer organisations had put it on an “avoid” list.

But in the UK, no official body such as the Office of Fair Trading or the Financial Services Authority had (and still has not) ever issued a clear and unequivocal warning against landbanking. Land is not a regulated investment so anyone can sell it without worrying about its suitability. Several landbankers have gone bust, leaving investors with worthless tracts of land while promoters got away with hundreds of thousands. I repeat: there is no law to prevent anyone paying silly prices for almost worthless land.

Commercial Land is run by Stephen James Cleeve who has had a colourful career. He was involved with two firms which offered wine investment in the late 1990s. One was shut down by the then Department of Industry in the public interest while Cleeve was banned from being a company director for eight years in 2000. Cleeve, who attended top public school Stowe, says this was all a mistake.

Mr McNaught, who left school at 14 for a job in a steelworks, says: “I knew nothing of all this. I knew nothing of landbanking, but I was promised a substantial return within three years. I was really a lamb led to the slaughter.”

He handed over £60,000 in early 2008.

Mr McNaught had been dealing at Commercial Land with someone called Peter Miller who officially departed the scene in late 2009, although it had been impossible to contact him for a long time before that as he was “on holiday”.

But if all this was not bad enough, Mr McNaught was phoned later in 2008 by a firm called Property Partnership, whose official address is at a maildrop in London's Bishopsgate.

Next week, I'll recount how Mr McNaught handed over a further £100,000 to Property Partnership and how he was asked for a further £400,000 so he “could exit the market”. I'll reveal extracts from a transcript of a phone call with Property Partnership where a PP operative says Mr McNaught could not exit the market for anything less than £400,000 more as “he had been rude”. He was also told he “would not get a penny”.

Award-winning scams expert Tony Levene explains why he's writing a blog about scams and why he is The Scam Magnet!