[2025] EWHC 2751 (Admin)

The Commission summarised views on whether leasehold tenure is inherently unfair ([1.39]-[1.46]). “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”. Consequently they consider that a landlord’s entitlement to enfranchisement compensation involves them being asked to pay again for a property they had already “bought” [1.40], [1.42] and [14.2]. At [1:42]:

“Leaseholders often find themselves compelled to make an enfranchisement claim, either (i) because they wish to sell their lease and a purchaser can only be found (or will only be able to obtain a mortgage) if the length of the lease is increased, or (ii) because they know that the cost of doing so in the future will likely be higher than it is at present. They are compelled to make a claim in order to be able to protect the value of their interest from reducing further. And in many cases, that interest is not only an asset but also their home.”

From 1987, collective enfranchisement in a block of flats was seen as a route to commonhold [2.13]. Part of the rationale for the Bill which led to the LRHUDA 1993 was that their wasting nature made long leaseholds as a form of tenure unfit for purpose, reflecting a shift away from leaseholds generally [2.17];

The Law Commission described the methods for assessing marriage value at [14.53]-[14.66], including the complexity of valuing the leasehold as if it did not benefit from a right to enfranchise, whereas that benefit is priced in to comparable evidence in the real world;

The Commission’s option 2A for consultation involved limiting the landlord’s compensation to term value and reversion value (i.e. excluding marriage value and hope value). The compensation would represent what the landlords would receive if the lease were to run its full course [15.92].

The perception of the inherent unfairness of leasehold tenure and the wasting asset issue were reiterated [1.9], [1.13], [3.4]-[3.11] and [5.101];

The Law Commission changed its approach from the Consultation Paper so that its suggested schemes for assessing market value were based on different assumptions about the market in which the landlord’s interest is being valued [5.79] and [5.88]. This accorded with the observations of Lord Walker in Sportelli at [34] (see [187] above). Scheme 1 would assume that the tenant is not in the market to buy the reversion and never will be, with the consequence that marriage value and hope value would be excluded [5.85];

Scheme 1 reflected the following points [5.101]:

“… On the other hand, leaseholders would argue that the fact that their need to make an enfranchisement claim is borne out of the limited and wasting nature of the asset that they hold means that it is unfair for the landlord to be able to make a profit out of selling his or her interest to the leaseholder rather than to a third party. A landlord should receive the value of his or her asset in the eyes of a third party, and not a profit made as a result of the leaseholder’s willingness to outbid the third party in order not to lose his or her entitlement to possession of the property.”

The Law Commission stated at [5.102]:

“There are competing arguments as to whether the leaseholder, as special purchaser, should be ignored. Landlords would say that enfranchisement is common and the necessity to enfranchise ought to be well-known to leaseholders, so it is acceptable for their presence in the market (and therefore the payment of marriage value) to be taken into account. On the other hand, leaseholders would say that the very fact that enfranchisement is necessary and common provides even more support for a regime under which only the landlord’s loss, rather than the landlord’s profit, is to be paid. Leaseholders are, in effect, being penalised for enfranchising; they are forced to enfranchise because their lease is running down, but at the same time they have to pay more than any other person would have to pay for the freehold. Leaseholders would also say that Scheme 1 still produces a market value because there is no guarantee that a leaseholder will ever enfranchise – the lease might just run its course.”

The reforms proposed by the Law Commission and by the Government were intended to create “fit-for-purpose home ownership” and fell into two categories: (1) reforms laying the foundation for homes to be owned in the future as freehold (i.e. commonhold) and (2) reforms to address the problems faced by those who continue to be tenants ([1.8]-[1.12]);

The Law Commission set out reasons as to why leasehold tenure is considered to be imbalanced and inherently unfair and therefore unsuitable for the ownership of residential property [1.25]-[1.33]. That imbalance arises from the time-limited nature of a long lease [1.26];

Under the heading “Problems with the current law” the Law Commission stated that although tenants of long leases buy their asset at a value close to or equivalent to freehold value, the time-limited nature of that asset results in tenants finding themselves compelled to make an enfranchisement claim, because they cannot find a purchaser for their property, or a mortgage cannot be obtained, unless the lease is extended, or because they know that the cost of enfranchisement will be higher in the future [2.18]. We note that the Law Commission referred to these matters again when dealing with the question whether tenants should pay landlords’ non-litigation costs in connection with enfranchisement (e.g. [12.31]).

There are a number of economic market failures in the residential leasehold sector, beginning with the inherent power imbalance between landlords and tenants [6];

There were three additional justifications for legislative intervention, which included the extra costs and complexity of a tenant having to pay marriage value where the unexpired term of his lease is 80 years or less;

Instead, it was proposed to compensate a landlord as if the lease would run to its end date. He would receive the present value of the future rental stream to which he is entitled and his reversionary value. The reversion represents the value of the demised property with vacant possession, on the basis that it is deferred to the date when the tenant’s wasting asset expires ([7] and see also [34]);

The IA reiterated the wasting asset problem which results in the costs of enfranchisement being increased by a tenant having to pay 50% of marriage value [26];

The Bill sought to rebalance those costs by inter alia removing the requirement to pay the marriage value component [28];

The summary of the policy objectives at [75] referred to making the leasehold market fairer, by inter alia addressing the inherent power imbalance between tenants and landlords;

The Government took the view that the Bill was necessary so that “all leaseholders” would benefit from the reforms ([78] and see also [137]).