A shadowy deal that sees the town hall pay a private company tens of thousands of pounds when a council house is sold, has caused fury among housing experts.

Under the agreement – which both sides say is confidential – Islington Council could have paid more than £5.3million to Partners for Improvement in Islington (PfI) in compensation for homes sold under the Right to Buy (RTB) initiative.

PfI, which manages all the council’s street properties, borrowed £240m to refurbish them under the decent homes programme, but will be repaid about £800m by the council by the time the contract ends.

‘Disgraceful’

Some of this cash is to cover maintaining the properties, but if a house is sold under RTB the company will no longer get that income – and it says the payment, up to £40,000 per house sold, is necessary to stop it losing money.

Brian Potter, chairman of Islington Leaseholders Association, said: “These contracts never should have been agreed. It’s absolutely disgraceful. Partners have guaranteed profit, with no risk, at the expense of the taxpayer.

“This is money that could be used to build new homes in Islington. Instead it becomes private profits. It’s a terrible idea.

“They’ve always got an incredible amount of money for doing very little work – now they are getting it for no work. It’s money for old rope.”

Martin Rutherford, a housing campaigner, said: “I am totally disgusted with the way Islington are toying with our money.

“There are so many better ways they could use this cash and they need to justify what they are doing with it. Who is checking these contracts? I am just gobsmacked by this.”

A council spokesman said: “Because Partners will have spent a substantial amount of money doing the property up and would have anticipated income for the next few years to cover the cost of that, there is some financial compensation for the loss of income.

“The amount varies depending on the type of property, and when it is sold - less towards the end of the contract than at the beginning. We can also replace properties with another council property to make up the difference.”