[2025] EWHC 2751 (Admin)

Introduction

This judgment is set out under the following headings:

The claimants, who are owners of freehold and other reversionary interests of dwellings, and to whom we shall refer as “landlords” (Footnote: ¹), ask the court to declare that amendments made by the Leasehold and Freehold Reform Act 2024 (“LFRA 2024”) to legislation for determining the sums a landlord will receive when a tenant under a long lease exercises a statutory right to enfranchise are incompatible with Article 1 of the First Protocol (“A1P1”) to the European Convention of Human Rights (“ECHR”). A1P1 provides:

“Protection of property

Article 1

Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.

The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.”

In this introduction we outline the regime which was amended by the LFRA 2024. It is also necessary to refer to a previous A1P1 challenge and its outcome, because the issues in that litigation and the manner in which they were resolved remain highly relevant to these challenges to the latest chapter in the reform of that regime.

The Leasehold Reform Act 1967 (“LRA 1967”) conferred on tenants a right to enfranchise low value houses (i.e. houses where the rateable value was below a ceiling and where the rent was less than two thirds of the rateable value) held on a “long tenancy” (i.e. a term exceeding 21 years) and occupied as the tenant’s residence. A tenant became entitled to acquire the freehold reversion or a single 50 year extension to his lease on terms which the legislation described as “fair”. The LRA 1967 obliged the landlord to make the necessary grant.

Part of the rationale for the legislation was set out in the White Paper “Leasehold Reform in England and Wales” (Cmnd. 2916 – February 1966) (“the 1966 White Paper”). It was said to be unjust that at the end of the term ownership of the land and the house should revert to the freehold reversioner, together with any improvements made by the tenant or his predecessors, without the landlord paying anything to the tenant. Irrespective of whether the tenant had constructed the house under a building lease arrangement, he and his successors would have borne the costs of maintaining the property throughout the term, together with the costs of any improvements. The 1966 White Paper stated that such a tenant was morally entitled to the ownership of the building.

Consequently the LRA 1967 proceeded on the basis that “in equity” the land belonged to the landlord and the building to the tenant (para. 4 of the 1966 White Paper). Here the word “equity” expressed the legislature’s view as to what would be fair as between the parties, not a property law concept. So the LRA 1967 laid down a valuation formula so that the landlord would receive a purchase price based on the value of the land, subject to the tenant’s lease, but disregarding the value of the house situated on it.

The creation of a right to enfranchise was also intended to address other injustices faced by tenants because of the nature of a long lease as a wasting asset. Notwithstanding the substantial premium paid for the grant of the lease, its value declines eventually to nil upon expiration. As the residue of the term and its value declines, so potential purchasers find it difficult to obtain mortgage finance and the lease becomes more difficult to sell. We discuss the “wasting asset problem” in more detail below.

Section 9(1) of the LRA 1967 required the price for the enfranchisement to be that which the landlord’s reversion in the house might be expected to realise if sold by a willing seller in the open market on a number of specified assumptions. In 1969 the Lands Tribunal decided that this hypothetical sale, or valuation, would include a bid from the actual tenant. That bid would reflect the opportunity for the tenant to create “marriage value” through the merger of his interest with that of the landlord. For part of the duration of a tenant’s lease, the value of that lease and of the landlord’s reversion when merged in one ownership is worth more than the aggregate of the separate values of those two interests in different ownerships. In those circumstances, the tenant is expected to bid more than others in the market in order to obtain the uplift in value from the marriage of his lease with the freehold reversion. In a straightforward case, the marriage value would be shared between the landlord and the tenant.

However, by s.82 of the Housing Act 1969 (“HA 1969”), Parliament inserted an additional assumption into the valuation formula in s.9(1) of the LRA 1967 that the tenant (and any family member living with him) would not buy or seek to buy the reversion. The object was to exclude marriage value from the price payable for enfranchisement under the original statutory scheme.

The Housing Act 1974 (“HA 1974”) extended the right to enfranchise by raising the rateable value limits. At the same time the valuation formula for the price payable to the landlord for those newly enfranchisable properties was amended (a) to reflect the value of the house as well as the land and (b) to include a bid from the actual tenant (so as to allow a share of any marriage value created to be awarded to the landlord).

In James v United Kingdom (1986) 8 EHRR 123 trustees for the Westminster estate made an application to the European Court of Human Rights (“ECtHR”) alleging that the compulsory enfranchisement of a number of properties under the LRA 1967 and the HA 1974, including the statutory basis upon which the reversionary interests were valued, violated A1P1. The application was rejected by the ECtHR. The fair balance test required by A1P1 was satisfied. The measures did not result in the placing of an excessive burden on the applicant.

By a series of statutes, the scope of the right to enfranchise was extended for houses and, for the first time, to flats. We summarise the key changes below. But in outline, the residential, low rent and rateable value tests have been removed over time. The Leasehold Reform, Housing and Urban Development Act 1993 (“LRHUDA 1993”) introduced for tenants of flats firstly, a right of collective enfranchisement to acquire the freehold of a building containing flats and secondly, in the alternative, an individual right to a lease extension of 90 years. The price payable to the landlord on the exercise of these extensions to enfranchisement rights has continued to be based on a hypothetical sale in the open market in which it is assumed that the actual tenant is able to bid, allowing the landlord to receive a share of any marriage value.

The Commonhold and Leasehold Reform Act 2002 (“CLRA 2002”) made two changes to the assessment of marriage value for determining the enfranchisement price payable to the landlord. First, where the unexpired term of the tenant’s lease exceeds 80 years, marriage value is taken to be nil (s.146). It was considered that the merger of such a long lease with the freehold reversion would not generate any significant marriage value. Second, where the remaining term of a lease is 80 years or less, the marriage value is required to be shared equally between landlord and tenant (s.145).

The Cadogan and Grosvenor (“C&G”) claimants relied upon an expert valuer’s report by Mr Roberts. At para. 98(d) he introduced as Figure A the graph we reproduce below. The graph models the relative values of the tenant’s share of freehold vacant possession value (“FVPV”) (left vertical axis) and the landlord’s share of FVPV (right vertical axis) over the remaining term of a lease from 80 years down to expiration. The landlord’s reversionary interest increases from close to 0% of FVPV where there are 80 years of the term unexpired to 100% of that value by the time the term ends. On the other hand, the tenant’s interest declines from approaching 100% of FVPV where 80 years of the term remains unexpired down to 0% of that value by the time the term ends. Mr Roberts says that the impact of marriage value is strongest between 20 and 45 years unexpired, peaking at slightly above 30 years (para. 98(d)).

Leaving aside those cases which fall within the original ambit of the LRA 1967 and to which the original valuation formula still applies, the price payable to the landlord for enfranchisement has generally been the aggregate of the following three components:

In December 2017 the Government published a report “Tackling unfair practices in the leasehold market – Summary of Consultation responses and Government response”. The Government said that it would work with the Law Commission on a wider programme of reform. This would include making it easier and cheaper for all tenants to enfranchise, whether buying a freehold or extending a lease. The Law Commission produced three substantial reports on the subject between 2018 and 2020. Both the Commission and Government carried out substantial consultations, following which a Bill was introduced in the House of Commons on 27 November 2023. The LFRA 2024 received Royal Assent on 24 May 2024. We summarise the events which culminated in the passing of the LFRA 2024 at [194]-[278] below.

The CLRA 2002 also introduced commonhold as an alternative form of ownership of flats to leasehold. However, only about 20 commonholds had been formed by 2018. Consequently the Law Commission and Government have also been considering how commonhold can be “reinvigorated” through a series of reports and consultations which took place in parallel with the process for reforming leasehold enfranchisement.

There are before the court six claims for judicial review brought by substantial landlords, which are described briefly in [32]-[48] below. Although there are differences in the relief sought by individual claimants, taken as a whole, they seek a declaration under s.4 of the Human Rights Act (“HRA”) 1998 that the following three measures of the LFRA 2024 dealing with the amounts payable to landlords on enfranchisement are incompatible with A1P1 as enacted in the HRA 1998:

The three measures which the claimants seek to challenge have not yet been brought into force. In part, this is because the LFRA 2024 also authorises the prescription of the deferment and capitalisation rates which are essential to the valuation method summarised in [15] above. The claimants raise no objection in the current proceedings to the legislation which provides for those rates to be prescribed.

The parties have helpfully agreed the issues which they ask the court to determine. When we set out those issues below, we will also identify which issues are pursued by each party and the declarations of incompatibility (“DoI”) sought ([49]-[52] and Annex 2 below). We are also asked to make a cumulative assessment as to whether measures (1), (2) and/or (3) in [18] above are jointly incompatible with A1P1.

We are grateful to the claimants and their legal teams for the way in which they co-operated in the preparation of a number of Agreed Statements and the presentation of their submissions, both written and oral. In order to avoid duplication they divided the issues between them and adopted the submissions of each other as appropriate. We are also grateful to counsel for all parties for their helpful submissions. Nonetheless, we are conscious that this is a long judgment, reflecting the number of issues and volume of materials we were asked to consider. While we address a number of matters of general relevance in the early sections of the judgment, we have also sought to ensure that the sections addressing the three principal complaints can be read on a largely self-contained basis, without too much cross-referring to sections appearing elsewhere. This has involved a degree of repetition, although we have sought to minimise this. We attach a table of abbreviations used in this judgment at Annex 1.

Section 33 of the LFRA 2024 amends the LRA 1967 and the LRHUDA 1993 so that a tenant entitled to make a claim to enfranchise can obtain a lease extension of 990 years, rather than 90 years, at a peppercorn rent. Sir James Eadie KC accepted on behalf of the defendant that because the grant of a lease of such length is tantamount to a transfer of the freehold, the exercise of that new right to enfranchise in respect of a flat would amount to a deprivation of the landlord’s possession (the freehold reversion) for the purposes of A1P1, as in the case of a claim by the tenant of a house to acquire his landlord’s freehold reversion. However, the claimants do not seek a DoI specifically in relation to the new entitlement of a tenant to obtain a 990 year extension of his lease.

The claimants do not seek a DoI in relation to the other rights to enfranchise (acquisition of the freehold or collective enfranchisement), on the basis that under the LFRA 2024 they are exercisable in more instances than in 1967 or 1974 as the result of the progressive relaxation of the qualifications for enfranchisement.

Likewise, the claimants do not seek a DoI in relation to s.27 of the LFRA 2024. That provision amends the LRA 1967 and the LRHUDA 1993 so as to remove the requirement that a tenant of a house or flat must have owned his or her lease for at least 2 years before qualifying to make a claim for enfranchisement.

Nevertheless, the claimants make an additional point that because the LFRA 2024 is likely to increase the number of instances in which a right to enfranchise will be exercised, the adverse effects on landlords of the three measures referred to in [18] above will be greater. The claimants also point to two amendments by the LFRA 2024 to the scheme for collective enfranchisement which are said to increase the adverse impact of the reforms on landlords and which should therefore be taken into account when assessing the merits of the claims for DoIs regarding the impugned measures:

It is common ground that the measures under challenge will result in considerable reductions in the sums payable by enfranchising tenants to their landlords. The Government produced an Impact Assessment of the Bill in October 2023 (“the IA”) which was published on 11 December 2023 and provided to Parliament. After the LFRA 2024 was enacted, errors were discovered in part of that work and the Government produced an Addendum to the IA on 14 April 2025 (“the Addendum IA”). Even so, the claimants say that a number of the estimates of future loss for landlords are still too low. They produce some higher figures. The parties acknowledge that it is not possible for the court in these proceedings for judicial review to resolve the differences between those estimates. They have also accepted that it is unnecessary for the court to do so in order to determine the issues on incompatibility with A1P1 raised by the claims.

To summarise:

However, it should also be borne in mind that a ground rent is not a full rack rent (i.e. a rent which represents the full open market value of the dwelling). Indeed, in many cases a ground rent may only be a peppercorn or a nominal sum. Ground rent is payable during the term of the lease in addition to (a) the capital sum, the premium, paid to the landlord when the lease was granted or (b) the costs of erecting a dwelling incurred by a tenant under a building lease. Such leases have commonly been granted by landlords such as the C&G claimants (see the explanation by the ECtHR in James at [11]-[12] and [27]). The LFRA 2024 does not remove or affect the value received by the landlord upon the grant of a lease, in the form of the premium paid or the erection of a dwelling, by the tenant or a predecessor in title.

There is an issue between the parties as to what are the aims of the measures under challenge. In a nutshell, the claimants say that the measures were intended to make it easier and cheaper for tenants to buy the freehold or obtain a lease extension for the homes in which they live and not for people or institutions owning homes as an investment in the private rental sector. They submit that because the measures benefit tenants in general, rather than simply leasehold occupiers of homes, they are not rationally connected with the true aim of the measures. Alternatively, if the aims of the measures were to benefit tenants in general, the claimants say that it was not legitimate for Parliament to enact measures that have the effect of transferring substantial parts of the market value of freehold reversions of dwellings belonging to investors to other investors in residential long leases, alternatively not to have reduced the scale of that transfer of value.

The claimants sometimes appeared to suggest that the three measures in [18] above represent an interference with an expectation that, pursuant to existing enfranchisement legislation, landlords would continue to receive marriage value, the full NPV of the contractual right to future ground rent (without any cap) and their non-litigation costs. Those submissions appeared to treat the property right in issue in this case as the existing statutory right to compensation, rather than the reversionary interest itself, and may in part reflect the manner in which the market in freeholds has developed since leasehold enfranchisement legislation was first brought forward, which we outline at [39]-[46] below. But the alteration of such expectations by the LFRA 2024 could not represent a “deprivation” of “possessions” belonging to landlords within the meaning of A1P1. Instead, the three measures summarised in [18] have simply altered the compensation payable to a landlord where a tenant exercises a right to enfranchise. If that were not so, the analysis would become circular: landlords would argue that a fair proportionality balance satisfying A1P1 required that they be compensated for the removal or reduction of those elements of compensation. But compensation for the deprivation of a possession, the freehold reversion, is not to be confused with that possession.

Fortunately in the final analysis none of the claimants fell into that trap. Subject to issues about the aims of the three measures under challenge (see [29] above), it is common ground that the central issue for the court to determine is whether the alterations made by those measures to the sums receivable by landlords for enfranchisement have resulted in the proportionality balance under A1P1 becoming unfair.