[2025] EWHC 2751 (Admin)

The ECtHR has continued to take the same approach to the width of the margin of appreciation in the field of housing, which is regarded in modern society as a central concern of social and economic policies (Mellacher v Austria (1989) 12 EHRR 391 at [45]):

“In order to implement such policies, the legislature must have a wide margin of appreciation both with regard to the existence of a problem of public concern warranting measures of control and as to the choice of the detailed rules for the implementation of such measures.”

In Hutten-Czapska v Poland (2007) 45 EHRR 4 the Grand Chamber stated at [166]:

“The notion of “public” or “general” interest is necessarily extensive. In particular, spheres such as housing of the population, which modern societies consider a prime social need and which plays a central role in the welfare and economic policies of contracting states, may often call for some form of regulation by the state. In that sphere decisions as to whether, and if so when, it may fully be left to the play of free market forces or whether it should be subject to state control, as well as the choice of measures for securing the housing needs of the community and of the timing for their implementation, necessarily involve consideration of complex social, economic and political issues.

Finding it natural that the margin of appreciation available to the legislature in implementing social and economic policies should be a wide one, the Court has on many occasions declared that it will respect the legislature’s judgment as to what is in the “public” or “general” interest unless that judgment is manifestly without reasonable foundation. …”

The claimants cited a Chamber decision in Lindheim v Norway (2012) 61 EHRR 29 as indicating a change of approach since James. But in fact Lindheim relied upon this same statement in Hutten-Czapska as well as several of the key passages in James.

Nevertheless, the claimants say that Strasbourg jurisprudence has moved on since James. Ms. Carss-Frisk KC, appearing on behalf of the ARC claimants, submitted that a new wind is blowing and that the courts are taking “a more muscular approach” to the application of A1P1. This is said to be based largely on Lindheim at [135], where the Chamber court referred to “jurisprudential developments” since James “in the direction of a stronger protection under [A1P1]”. Unfortunately, that decision did not state what those developments were thought to be. Certainly, there is nothing in Lindheim or in any other authority cited to us disapproving or altering any statement of principle in James. Those principles continue to be cited and applied. They form part of the clear and constant jurisprudence of the Strasbourg court.

It may be significant in relation to the unexplained observation at [135] of Lindheim that the court treated that case as involving a control of use rather than a deprivation of a possession ([76]-[78]). In R (Mott) v Environment Agency [2018] UKSC 10; [2018] 1 WLR 1022 Lord Carnwath JSC stated at [32] that the Strasbourg cases show that the distinction between expropriation and control of use is neither clear-cut, nor crucial to the application of A1P1 (see also AXA at [107]-[108]). That was in the context of a case where the central issue was whether a control of use through a licensing scheme imposed a disproportionate burden on the licensee in the absence of any compensation for the substantial loss caused (see [31]). The more recent Strasbourg cases cited to us were mainly concerned with the financial consequences of legislation controlling the use of property. It was not suggested that those decisions on the third rule in A1P1 had any implications for the standard of compensation approved in James and other authorities for the second rule in A1P1, the deprivation rule, or for the application of that standard. Nevertheless, we will address those cases.

Lindheim concerned ground lease agreements entered into before 1976 for either permanent homes or holiday homes, generally for a term of 99 years. It is important to note that those agreements let only bare sites to the tenants who were responsible for investing in and carrying out the construction of buildings on the land. The site owner “would renounce the possibility of using the property for financial gain by any other means than receiving the … rent” for the ground [121]. It was common ground before us that a landlord received only that rent and no premium. From 1976 statutory controls began to be applied. Initially, tenants had a right to extend their agreements but landlords were able to introduce new conditions. Rents were allowed to rise in line with a consumer price index [39]. Between 1950 and 1980 real-estate prices moved in line with general inflation. But after 1980 property prices soared ([12]-[13]). Some lessees were financially unable to exercise a right of redemption to purchase their plots of land, even at 40% of undeveloped plot value ([19] and [97]). Accordingly, under new legislation in 2004 which amended s.33 of the Ground Lease Act 1996, lessees were given the right to extend their leases for an indefinite duration and on the same terms as before ([8]-[11]). The court decided that the low limit on the level of rents payable to the landlords for an indefinite duration (less than 0.25% of the market value of a plot) constituted an interference with the enjoyment of their possessions under the third rule in A1P1, the control of use rule ([77]-[78]).

The court accepted that the legislation pursued a legitimate aim of social policy, although it had a much wider reach than addressing potential financial hardship and social injustice and applied to holiday homes as well as permanent homes ([99]-[100], referring to James at [48]-[49]). Nonetheless, the court concluded that a fair balance had not been struck because, in summary:

In The Karibu Foundation v Norway (App. No. 2317/20, 3 April 2023) the ECtHR held that the amendments made by the Norwegian legislature in response to Lindheim had struck a fair balance. The statute provided for a one-off increase in rents to 2% of plot value, a revaluation using that same measure every 30 years and a further adjustment for price inflation at least every 10 years. But that one-off increase in rent to 2% of plot value was subject to an absolute ceiling, adjusted solely for inflation (see [63]). Thus, the main difference introduced by the legislation considered in Karibu was simply that increase in the linkage of ground rent to a percentage of site value.

The ECtHR again held that it was appropriate to apply a wide margin of appreciation [74]. The Court noted that the percentage of plot value had been set in the legislation at 2%, rather than the 2.5% initially proposed, but considered that that reflected the virtually risk free, passive nature of the investment ([40] and [87]). In fact, the applicant landlords in Karibu were only entitled to rents equating to about 0.6% of plot value ([33] and [86]). Notwithstanding the limited financial opportunity allowed to a landlord to exploit its property rights (in particular because of the rent ceiling fixed in real terms [89]), the amended statutory scheme did not violate A1P1. In reaching that conclusion the court attached “considerable weight” to the thorough review of the proposed legislation which had been carried out [92]. The Court was not troubled by the absence of any reference in that review to such matters as the applicant’s financial need to fund its philanthropic activities or the wealthy circumstances of the lessees ([2], [69], and [81]). The Court accepted that in view of the very large number of ground lease contracts in Norway, there was a legislative need for clear and foreseeable solutions, to avoid costly and time-consuming litigation on a large scale. The general interest in addressing “social policy concerns” was coupled with the interest in enacting legislation providing for “general regulation” ([78] and [93]).

A number of the other Strasbourg cases cited to us were concerned with rent restrictions as a control of use, not a deprivation. But the factual circumstances were extreme and self-evidently amounted to a violation of A1P1. Thus, in Hutten-Czapska, landlord and tenant legislation capped rents at such low levels that they did not even cover the costs incurred by landlords on maintenance, let alone allow for any profit or return (distinguishing Mellacher). In addition, there were severe constraints on a landlord’s ability to terminate a tenancy and obtain possession. In Gauci v Malta (2011) 52 EHRR 25 the level at which a controlled rent had been set was about 12.5% of market value and the landlord was forced to remain in a relationship with the tenant for an indefinite period. The socio-economic conditions which had justified the controls 50 years beforehand had ceased to exist. Similar considerations applied in Zammit v Malta (2017) 65 EHRR 17 where a cap prevented the rent from exceeding 40% of what would have been a fair rent in 1914. In Radovici v Romania (2010) 51 EHRR 32 legislation imposed on landlords who had obtained, but failed to serve properly, an eviction order against their tenant, a five year extension of the tenancy, effectively with no means of obtaining any rent.

It is not difficult to see why in such cases the court decided that a fair balance had not been struck, not least because the severe burden of the State’s social aims had been placed on one particular social group, rather than being distributed fairly across the community. These decisions were not concerned with addressing perceived unfairness or inequity as between the parties to an existing form of legal relationship, but with at attempt to address a much broader societal injustice for tenants, such as shortages of accommodation in the housing sector, by measures the effect of which was borne exclusively by landlords.

We turn to consider ECtHR cases in which the deprivation rule was violated because of the inadequacy of the compensation provided.

In Scordino v Italy (No.1) (2007) 45 EHRR 7 the Grand Chamber clearly laid down an important distinction between cases involving a “distinct expropriation”, in the sense of compulsory acquisition for a particular development project, from a deprivation in pursuit of a process of economic, social or political reform ([95]-[98], [101]-[103] and [256]-[257]). In cases of distinct expropriation normally only full compensation is regarded as “reasonably related” to the value of the property. On the other hand, measures promoting economic, social (including social justice), or political reform may justify a substantial departure from full compensation. The Grand Chamber based this distinction notably on James at [54], as well as Broniowski v Poland (2005) EHRR 21 at [182].

In Broniowski v Poland the Grand Chamber stated that the reform of a country’s economic and political system, and the state of its finances, could justify expropriation of property with “stringent limitations” on compensation. Nevertheless, a violation of A1P1 was established in that case because there was no justification for the applicant to have received only 2% of the amount to which he had been entitled. Plainly the level of detriment to the applicant in that case is not remotely comparable to the effects of the three measures in the LFRA 2024. The extreme level of the impact on that applicant was similar to several of the rent restriction (control of use) cases, discussed above.

Other cases cited by the claimants were examples of distinct expropriation. In Katikaridis v Greece (2001) EHRR 6 the applicants owned business properties adjoining a major road to which they had access. Parts of their properties were expropriated for the construction of a flyover, as a result of which they ceased to have a connection to a major road. The legislation provided that adjoining owners benefiting from a new major road up to 30m wide should pay for an area of land 15m wide and deemed that the owners of properties fronting a new road derived such a benefit. The ECtHR held that A1P1 had been violated because the compensation for each applicant had been reduced by the value of an area 15m wide, without any regard to the reality that the works in question had been of no benefit or had in fact caused losses to the businesses concerned. The inflexible deeming provision was held to be manifestly without reasonable foundation because it required the diverse range of effects of a road scheme on adjoining properties to be disregarded ([49]-[50]).

In Papachelas v Greece (2000) 30 EHRR 923 the Grand Chamber, having rejected an A1P1 complaint that the compensation per sqm for the expropriation of over 150 properties for a road-building scheme was 3% below market value ([49]-[50]), went on to find that that Article had nevertheless been breached because of that same deeming provision in Greek law, following the decision in Katikaridis. The burden imposed on landowners by that deeming provision was excessive and illegitimate unless they had an opportunity to prove the damage they had sustained and, if successful, to receive relevant compensation ([53]-[54]). This too was a distinct expropriation case.

In Scordino v Italy (No.1) land had been made subject to an expropriation permit for the construction of housing. The Grand Chamber held that compensation amounting to less than half the market value of the land struck an unfair or disproportionate balance. The court said that like Papachelas this had been a “distinct expropriation” case.

Kozacioglu v Turkey (2011) 53 EHRR 34 also falls into the distinct expropriation category. There the applicant’s house, which had been classified as a cultural and historical asset, was expropriated as part of a scheme for the regeneration of the surrounding area. The Grand Chamber decided that the decision of the Court of Cassation that a building’s historic features and rarity could not be taken into account in assessing its value for the purposes of compensation (in that case it was said to increase the value by 100%) violated A1P1. A particular feature which supported the ECtHR’s conclusion that an excessive burden had been imposed on an individual and a fair balance had not been struck, was that under Turkish law any depreciation in the market value of a building attributable to its “listed status” would be taken into account in the assessment of compensation for expropriation, but any appreciation in its value resulting from that status would not ([65]-[72]).

Having reviewed the Strasbourg jurisprudence, we accept the defendant’s submission that the principles laid down in James essentially remain sound law today. The legislation considered in James did not involve “distinct expropriation”; it concerned economic and social measures of broad application, including the remedying of socio-economic injustice. The tests which the ECtHR applied in James to measures of that kind continue to be applicable. The ECtHR decided that the measure of compensation in Katikaridis and Papachelas violated A1P1 because it was applied generally without any regard to individual circumstances including losses. But those were distinct expropriation cases. By contrast, when dealing with the socio-economic reforms of the LRA 1967, the court in James rejected at [68]-[69] the applicant’s criticisms of the legislation for failing to provide any independent machinery for adjudicating on the justification for expropriation or the principles for assessing compensation in individual cases (see [164] below). That challenge has not been revived in these proceedings.

The claimants rightly point out that the discussion of enfranchisement legislation after the LRA 1967 has ceased to be influenced by the notion that morally, or in “equity”, the land should be treated as belonging to the landlord and the house to the tenant, so that the price payable on enfranchisement should reflect only land value. From 1974 Parliament’s intention has been that the landlord’s compensation should reflect the value of the house as well as the site. But that does not mean that the ECtHR’s application of A1P1 principles in James to the enfranchisement code is outdated. The economic fundamentals essentially remain the same.

The position is that the tenant makes a very significant economic outlay, namely a substantial lease premium to the original landlord for land and dwelling and throughout the term ground rent, service charges and the costs of maintaining the building and improvements (and/or a payment to the preceding tenant to acquire the fruits of that outlay). Yet the interest the tenant receives is a wasting asset which, in the absence of statutory intervention, declines to a nil value by the term date, when he is obliged to return to the landlord the land and the dwelling maintained throughout the lease. Furthermore, there comes a point when the remaining length of the lease makes it practically unsaleable, because purchasers cannot obtain a mortgage from lenders for a term which they consider to be short (generally under 80 years). But despite the substantial outlay made, a tenant is only able to overcome the diminution in the value of his asset to nil and/or unsaleability by embarking upon the process of enfranchisement at a substantial additional cost. This “wasting asset problem” lies at the heart of the imbalance and unfairness in the relationship created by a long lease paid for by this substantial outlay.

In these circumstances, it is unsurprising that domestic courts have consistently referred to the obstacle presented by James to claims that the amount of compensation payable for enfranchisement violates A1P1 (Wilson v First County Trust Limited (No.2) [2003] UKHL; [2004] 1 AC 816 per Lord Nicholls at [68]-[70]; Earl Cadogan v Sportelli [2008] UKHL 71; [2010] 1 AC 226 per Lord Walker at [48]; The Trustees of the Alice Ellen Cooper-Dean Charitable Foundation v Greensleeves Owners Limited [2015] UKUT 320 (LC) per Sir Keith Lindblom President at [89]; and Kateb v Howard de Walden Estates Limited [2017] 1 WLR 1761 per Patten LJ at [47]-[49]).