[2025] EWHC 2751 (Admin)

In view of the reasoning set out above in relation to the Ground Rent Cap and the Marriage Value Reform, we can set out our views on this challenge more briefly. Given that the aims of this measure were for economic and social justice purposes common to the three reforms, and for the reasons set out above and in this part of the judgment, we remain of the view that a wide margin of appreciation is appropriate in the application of the A1P1 tests.

The approach taken by the Government and by Parliament accords with the Law Commission’s recommendation. The reforms to the enfranchisement valuation code provide compensation for the landlord based on market value. Plainly, they have not opted for a formula-based approach. The reversion value, which becomes an increasingly important component of the compensation as the length of the remaining term decreases, is an expression of market value which has not been altered by the LFRA 2024. The term value is also a market value. In many cases the 0.1% Ground Rent Cap will not be exceeded. But where the cap does apply in order to exclude the onerous or unfair element of a ground rent, we have concluded that the resultant term value is still reasonably related to open market value. The term value and reversion value components together represent the open market investment value of the landlord’s asset. For the reasons we have given, the exclusion of marriage value, in response to the wasting asset problem, does not result in compensation which is not reasonably related to market value.

We do not accept Mr. Jourdan’s submission that if a landlord has to pay his own non-litigation costs, then the compensation he will receive will be reduced by that amount and so he will receive less than the compensation due to him based on market value. We accept the approach taken by the Law Commission. Open market transactions ordinarily proceed on the basis that each party bears their own costs. That is the position where landlords buy freeholds from, or sell them to, each other (something which is clearly a very active market including for several of the claimants, as outlined at [41]-[46] above). A valuation based upon such comparable evidence, for example to arrive at a FVPV, involves the same assumption. So it follows that a vendor who pays his own costs does not receive less than open market value. On the other hand, if the purchaser were to pay the vendor’s costs, he would be paying more than market value as ordinarily understood. We do not regard the evidence in the witness statements of Mr Spearman (filed on behalf of Abacus) on the practice followed in voluntary and statutory enfranchisement claims as undermining the approach taken by the Law Commission to open market value generally. In any event that approach lay within the broad discretion available to Parliament when deciding to adopt the recommendations of a specialist law reform body which had carefully investigated these issues (including through an extensive consultation process) and produced a fully-reasoned set of proposals.

We also do not accept Mr Jourdan’s suggestion (para. 60 of his skeleton) that the Law Commission’s analysis is inconsistent with the decision of the Lands Tribunal in Sportelli [2007] 1 EGLR 153 at [97]. Abacus did not explain how this decision could assist us on this point. It appears to us that the Tribunal rejected an attempt to arrive at the value of the landlord’s freehold reversion using a deferment rate adjusted for transaction costs. In that context the Tribunal said: “since the statutory requirement is to arrive at ‘the amount which… the interest might be expected to realise if sold on the open market’, the requirement is to arrive at the price to be paid, not that price less deductions for the cost of sale.” The Tribunal did not reject the view subsequently adopted by the Law Commission and by legislators, that open market value is ordinarily inclusive of transaction costs.

In any event, the Government and the legislature were entitled to consider whether there is a sufficient justification for requiring one party, the purchaser, to pay the transaction costs of the other, the vendor in the context of a transaction which arises from the inherent unfairness of the leasehold model of property ownership. This is the real issue. Here the claimants submit that the justification for the pre-LFRA 2024 cost rules lies in the fact that under the enfranchisement code, the landlord is compelled to sell his interest (or to grant a lease extension out of his interest). The case is one of expropriation and said to be analogous to the compulsory acquisition of private land for a public project.

We have already cautioned against excessive reliance upon the analogy of UK compulsory purchase legislation in the present context. So far as the compulsory purchase code is concerned, the Compulsory Purchase Act 1965 sets out the methods by which land may be acquired under a compulsory purchase order which has been authorised under the Acquisition of Land Act 1981. Valuation of acquired land is dealt with separately under the Land Compensation Act 1961.

Section 23 of the 1965 Act provides that the conveyancing costs in relation to the compulsory purchase of such land must be borne by the acquiring authority. In London County Council v Tobin [1959] 1 WLR 354 the Court of Appeal held that professional fees and costs incurred in the preparation of a compensation claim for compulsory acquisition prior to the making of a reference to the Tribunal were recoverable as a head of compensation. In Lee v Minister of Transport [1966] 1 QB 111 the Court of Appeal agreed with this outcome, not on the basis that the costs represented disturbance compensation for being dispossessed from the land, but because under rule (6) of s.5 of the 1961 Act the costs were an “other matter not directly based on the value of the land”.

However, it does not follow that simply because enfranchisement involves a deprivation of the landlord’s reversion, the same approach on costs should be applied. In each instance these are matters of legislative policy for Parliament in the context of the principles governing A1P1. Here the defendant has put forward a robust justification for removing the tenant’s obligation to pay the landlord’s non-litigation costs on an enfranchisement claim.

Typically a compulsory purchase order is a measure obtained by a public authority dedicated to carrying out a specific project in a particular location in the public interest. The acquiring authority need not have any pre-existing interest in the land to be acquired or be in a property relationship with the landowner. It is an example of distinct expropriation, or a micro-economic setting, where close to full market value is normally required to be paid in order to be compliant with A1P1.

By contrast the enfranchisement code has broad social and economic objectives for the regulation of the private rights of landlords and tenants who are in an existing legal relationship, which they, or their predecessors in title will have created for the purpose of exploiting the economic possibilities offered by the original undivided property interest. The code imposes an obligation on the landlord to sell, but the tenant is also under compulsion to exercise his right to enfranchise in order to protect his asset, whether imminently or in the medium or longer term. The tenant is in this position because of the wasting asset problem that was created by the grant of the lease. By contrast a landlord has a permanent asset which during the course of the lease increases in value. Enfranchisement legislation is simply a general measure responding to the imbalance in the relationship. There is no distinct expropriation, such as a scheme or project.

Mr Jourdan submitted that an acquiring authority which has obtained authority to make a compulsory purchase is also under compulsion. For this proposition he relied upon the Raja case in which it was held that “the urgent necessity of the purchaser to buy” as well as “the disinclination of the vendor to part with his land” must equally be disregarded: “neither must be considered as acting under compulsion.” But that is simply a description of the hypothetical transaction which has to be assumed between a willing vendor and a willing purchaser for the purposes of arriving at compensation in a compulsory purchase. The Privy Council was not suggesting that in all cases of compulsory purchase an acquiring authority promotes a project in the public interest because it is compelled to do so (still less to do so because of the challenges of a wasting asset). The dictum in Raja does not describe a situation which is analogous to the situation in which all tenants of leaseholds are placed. Irrespective of whether a tenant would wish to incur the cost of enfranchisement, he is compelled to do so in order to resolve the wasting asset problem. It is not suggested that public authorities acquiring land compulsorily face that issue.

Mr Jourdan pointed out that some of a landlord’s non-litigation costs, such as the costs of investigating whether a claim is valid and obtaining a statutory valuation, are incurred solely because of an enfranchisement claim and would not be incurred in a normal open market transaction. To that extent he says that those costs are not reflected in open market values. That may be so, just as there may be costs involved in some open-market transactions between parties who are not in the pre-existing relationship of landlord and tenant which are not replicated in enfranchisement transactions (for example the costs of determining the commercial merit of transacting with that counterparty on particular terms at a particular time as against other alternatives, or in seeking internal approvals for the decision to transact). But that does not mean that the Costs Recovery Reform treats landlords unfairly. For the reasons set out above, the reform is justified as part of the rectification of the imbalance in the landlord and tenant relationship created by long leaseholds of dwellings. Each party, landlord and tenant, has to bear their own non-litigation costs, including costs which are solely related to enfranchisement, as part of that remedial social measure.

We have referred to the estimate of the total aggregated amount of non-litigation costs which landlords will no longer receive as a result of the LFRA 2024. Certain of the claimants have also estimated the losses that they would incur individually from the Costs Recovery Reform. Mr Spearman says that the average non-litigation costs per transaction which Abacus would no longer be able to recover amounts to about £3,500 for legal and valuation fees. He accepts that, as we would expect, that figure would reduce with the simplifying measures introduced by the LFRA 2024. It seems to us that expenditure of this order would not represent an excessive burden for landlords, bearing in mind also that tenants will continue to be responsible for their own costs. It is significant in considering the fairness of the balance struck by the Costs Recovery Reform that the costs burden is shared between landlord and tenant, with many landlords benefiting from the economies of scale and greater leverage which follow from being a “repeat participant” in a particular type of transaction. We also note that in para. 83 of her first witness statement filed on behalf of Grosvenor that Ms Paul accepts that the requirement for landlords to bear their own non-litigation costs may not be significant taken by itself.

But in para. 55 of his skeleton Mr Jourdan also referred to cases where the value of the landlord’s interest will be so low that the compensation receivable would largely be swallowed up by the landlord’s own non-litigation costs. He referred to a lease for 999 years at an annual ground rent of £300. The term value (the capitalised value of the rental stream) would only be of the order of £5000. Plainly he has chosen as an example a lease, the reversionary value of which is insignificant. Nevertheless, for low value claims the LFRA 2024 contains an exception to the new costs regime under which the tenant will have to pay that part of his landlord’s costs which exceed the compensation awarded within a figure which has yet to be prescribed by regulations (see [76] above) – something which, together with the tenant’s liability for his own costs, is likely to present a disincentive to enfranchisement in cases where the game is not worth the candle.

Next, Mr Jourdan submitted that there are alternative, less intrusive measures to the Costs Recovery Reform which would have achieved the objects of the LFRA 2024. Tenants could be liable to pay a fixed or capped contribution to non-litigation costs incurred by landlords. However, we consider that those alternatives would perpetuate the obligation of a tenant to pay his landlord’s costs for addressing the wasting asset problem and so would not achieve the aim of remedying the imbalance between landlords and tenants. Alternatively, it lay well within the legislature’s margin of appreciation to choose the reform as enacted in the LFRA 2024.