The landlord run by the billionaire Guy Hands’ private equity firm has issued the government a two-week ultimatum to drop legal action to take over 38,000 homes for military families and instead accept a one-off refurbishment payment of £105m. The Ministry of Defence revealed last week it planned to bring the properties back under government control, 25 years after a privatisation deal that has been criticised by the National Audit Office, the government’s spending watchdog, as a waste of taxpayers’ money. The landlord Annington’s offer would represent less than £2,800 per property, a figure that is thought to be unlikely to cover the costs of extensive repairs in some of the more dilapidated homes – and is lower than the MoD’s £140m spending on maintenance for a single year. It would also represent just over an eighth of what Annington paid out in a dividend to its parent company last year. Lady Liddell, the Labour peer who chairs Annington, blamed the government’s Defence Infrastructure Organisation for failing to maintain the homes. She said her company, which owns 200-year leases on the properties, was “generously offering to put this right”. In a letter sent on Tuesday evening to the defence secretary, Ben Wallace, and the defence procurement minister Jeremy Quin, Annington described the government’s attitude as “decidedly anti-business” and demanded the government accepted the deal and withdraw its legal action, or face a protracted court fight. “It would be a shame to see money that could go to improving the houses being wasted on costly and lengthy legal action,” Liddell wrote. In 1996, the Conservative government sold 57,400 properties in the so-called “married quarters estate” to Annington Homes, which was then bought for £1.7bn by Nomura, a Japanese investment bank that employed Hands. He later left Nomura to found the Terra Firma private equity firm, and bought Annington for £3.2bn in 2012. The MoD then rented back the homes on a 200-year lease at a discount, but also agreed to pay for their maintenance and refurbishment. The value of the properties has since surged to an estimated £7.6bn last year, leaving its private equity owners with an enormous paper profit. Yet the MoD is still paying about £180m a year in rent plus £140m in repairs and upgrades, despite taking back ownership of part of the portfolio. Annington insists it has offered to take on the maintenance, although it has not shared the financial terms of any offer. The valuable income stream backed by the portfolio has helped Annington to raise billions of pounds from investors in bond issues. That included an £800m debt issue in October that allowed it to pay a dividend of £794m to its parent company. The government is seeking to exercise “statutory leasehold enfranchisement rights”, Quin told parliament last week. The MoD has sought to take back only two houses at first as test cases to see whether Annington can be forced out. Annington claims the government has no right to do so. “I think the approach the government is taking is very interesting and clever,” said David Burns, a senior litigation partner at Ronald Fletcher Baker, a law firm. “By serving just two claims in the first instance, it has limited the cost and risks to a certain extent as it seeks to exercise rights of enfranchisement and gain control of a large stock of housing at a good price.” Liddell said: “We believe this significant pot of money would go a long way towards bringing service family accommodation into the 21st century. “The money that the government intends to spend on misguided attempts to enfranchise Annington properties is far better spent on desperately needed improvements to these service homes.” An MoD spokesperson said: “We believe our approach offers a significant opportunity to deliver value for money for the taxpayer and increase our flexibility in meeting the need of service families and wider government objectives. “We will of course study whatever Annington puts to us.”