[2025] EWHC 2751 (Admin)

Fecha: 24-Oct-2025

Are the effects of the wasting asset problem priced into the premia for residential leaseholds?

Are the effects of the wasting asset problem priced into the premia for residential leaseholds?

117.

Landlords suggested to the Law Commission that the wasting nature of a long lease is priced into the premium which a tenant pays (see e.g. [3.9] of the Valuation Report – see [217] below). The implicit assertion is that a lessee will pay a commensurately lower price in the market for a long lease than for a freehold with vacant possession of an equivalent dwelling which adequately values the difference between acquiring a time-limited interest declining in value to zero as opposed to a permanent asset.

118.

ARC, C&G and Abacus made relatively brief reference to material said to support a similar assertion. Some of that material was only served in early June 2025, purportedly in reply and therefore giving a limited opportunity for exploration or response. (Footnote: ³) Given that the imbalance in the relationship between landlords and tenants in relation to long leaseholds and the wasting asset problem had been a central feature of the ECtHR’s decision in James and of the Law Commission and Government papers over many years leading up to the reforms in the LFRA 2024, it is surprising that the claimants did not grapple with these matters from the outset of these proceedings.

119.

In James the ECtHR accepted at [13] that at the beginning of a very long lease the value of the tenant’s interest may be more or less equivalent to a freehold interest if the rent payable is a nominal one (see [83] above). We would add that if the ground rent payable is significantly higher, or subject to escalation, then in principle the premium for that lease might be reduced by the present value of that rental stream, so that the outlay would be similar to the value of a lease at a peppercorn (but see below).

120.

In her witness statement at paras. 151-152 and 154, Ms. Crowther, Director for Leasehold, Private Renting and Digital within the Ministry of Housing, Communities and Local Government, refers to what central government has seen as the “fundamentally unfair” nature of leasehold as a system of tenure for dwellings. She says that purchasers pay market prices for leasehold in the expectation of becoming an owner in the fullest sense of a dwelling, but their asset depreciates over time and they have to pay again to buy the freehold reversion or extend their lease to retain the dwelling they have already paid for.

121.

We were provided with a significant body of material indicating that in practice there is not a substantial difference in the market between the price paid for a freehold as opposed to a long lease, or at least not one which fairly reflects the economic differences between these two models of ownership:

The Law Commission Consultation Paper at [1.39] referred to concerns that “many leaseholders, when they acquired their lease, will have paid a premium that was not substantially different from the value of freehold interest in the property”. At [1.41] the Consultation Paper stated that they had been told “that many prospective purchasers of houses and flats – particularly first-time buyers – do not have a full understanding of the terms of the lease or of the implications of owning a leasehold property” and “may not even realise when purchasing a leasehold house that they will not become its outright owner.” They continued “consumers fail to give adequate weight to future costs in assessing the quality of an offer as a whole. This analysis may also explain consumers’ willingness to purchase long leases (perhaps at a similar price to a freehold interest) despite the further sums that will have to be paid in the future.” Following consultation, the Law Commission’s Valuation Report contained similar statements [3.4]-[3.11];

ii)

The preliminary report in June 2017 of the All Party Parliamentary Group for Leasehold and Commonhold Reform (“the APPG”) (see [198] below) referred to the suggestion that selling leasehold houses kept prices down. In response, the APPG pointed to a 2016 survey of the HM Land Registry database which “suggests there is no clear evidence for this claim”, and other evidence “that developers may now even be seeking to sell leasehold houses at a premium over their freehold equivalent.” Their own assessment of the “top ten areas where leasehold houses were built in 2016” showed “no consistent discount for selling leasehold ”;

iii)

The Government’s consultation paper in July 2017 “Tackling unfair practices in the leasehold market – a consultation paper” (“the 2017 UPP”) stated at [3.12] that “a leasehold house may be presented as a cheaper option than buying the freehold but it is not always clear that the initial ‘discount’ on the sale price of a leasehold house reflects the additional medium to long term costs leaseholders may face … These costs can total thousands of pounds more than envisaged at the point of sale.” At [3.14], the Government stated it was “not convinced” of the argument that the disadvantages of leasehold were reflected in the price. In its response to the 2017 UPP, the Government stated at [35] that “while it may be that a small discount is applied on the sale price, it is not clear that this is applied across the board …”;

iv)

The report by the Housing, Communities and Local Government Select Committee “Leasehold Reform: Twelfth Report of Session 2017–19” published on 19 March 2019 (the “HCLGSC Report”) referred at [82]-[83] to evidence of properties sold on a leasehold basis at the same price at which freehold properties were sold on the same estate and that “while developers told us that leasehold houses are routinely sold at a lower price than their freehold equivalents, it is concerning that several leaseholders provided evidence that this was not a consistent policy”;

The Competition and Markets Authority published a report entitled “Leasehold Housing Update report” (the “CMA Update Report”) on 28 February 2020 which stated at para. 77(c) that there was no persuasive evidence that prices for a lease subject to a ground rent have been significantly reduced when compared to equivalents with peppercorn ground rents (which we accept is a separate question from whether all of the disadvantages of leasehold ownership are fully reflected in a reduction from the freehold price of an equivalent property). On that second issue, although the CMA noted that “leasehold properties sell for less than freehold properties, and there is a body of academic research that supports this proposition”, “on a number of estates we have seen evidence of houses that are essentially the same being sold for the same price whether leasehold or freehold”. The CMA saw little justification for requiring ground rent to be paid in addition to a substantial initial purchase price for the leasehold of a dwelling (para. 77(a)).

122.

As we explain below ([235]-[242]), in its report entitled “Leasehold home ownership: buying your freehold or extending your lease” (No.392) (“the Enfranchisement Report”) of July 2020 the Law Commission took a firmer line on the imbalance between landlords and tenants in long leasehold relationships. For example, the Commission stated that leaseholders buy their time-limited asset at a value close to, or even equivalent to, the freehold value ([2.18] of the Report). Plainly, they had not been persuaded to the contrary view by the responses sent by landlords during the consultation.

123.

We also note that in the IA’s modelling of the impact of the reforms, para. 31d of Annex 2 explains one of the assumptions used for property prices:

“Savills reports that in the long run, this [freehold vacant possession values for dwellings] is approximately 1% higher than a standard long lease valuation.”

124.

Taken overall we are not persuaded that the material upon which the claimants relied contradicts or outweighs the reports summarised above, and certainly not that Parliament and Government were not entitled to act on the clear effect of the material which we have summarised.

125.

For example, the largely qualitative evidence for ARC of Ms Colton, a Solicitor, was, with respect, an unconvincing attempt to justify ground rents as providing value for items not covered by service charges (e.g. seeking competitively priced building insurance on an “institutional” rather than a “block” basis, where the premium is typically recovered from leaseholders and it is in the freeholder’s as well as the leaseholders’ interest for the building to be insured).

126.

There is a bare statement in the IA produced for the Bill in 2023 at [11] that leases are generally “expected to be” cheaper than freeholds without identifying the factors taken into account or the extent of any differential. The Impact Assessment for the Leasehold Reform (Ground Rent) Bill in 2021 (which proposed to restrict the ground rents in new leases to a peppercorn) sought to identify a premium for the purchase of a freehold relative to a lease for 125 years, to see whether the effect of capitalising an assumed ground rent of £250 a year (and other costs specific to a leasehold) would cause leasehold prices to exceed freehold prices, which would not be sensible. The best estimate of that premium was 7.1%. But even if that estimated premium were to be accepted, the assessment did not consider whether it was sufficient to price in or compensate for, the various disadvantages for tenants resulting from the wasting asset problem, including the need to incur the costs of enfranchisement in order to overcome that problem. The authors of that Impact Assessment were concerned with the rather more limited question of whether there was a sufficient differential to avoid mandatory peppercorn rents having an adverse effect on the leasehold price of property.

127.

Accordingly, we do not accept the claimants’ assertion that there is no unfair imbalance in the relationship between the parties to a long lease of a dwelling because the wasting asset problem and the costs of enfranchisement are fairly priced in when a long lease is granted (even if it were to be assumed that, in all cases, the purchaser of an interest in property has a genuine choice between buying a freehold or leasehold interest).