[2025] EWHC 2751 (Admin)

The Law Commission’s Valuation Report at page 19 of the summary and [6.146] referred to the difficulties of escaping an onerous or increasing ground rent by enfranchising because the amount of the ground rent would result in a higher premium (for an additional example of the latter see the summary to Valuation Report at page 19, [6.123] and [6.146]). At [6.131] the Law Commission noted that “it is not, however, within the scope of this project to reduce ground rents in leases outside the exercise of enfranchisement rights”;

The CMA Update Report discussed whether “onerousness” in the context of ground rents was a concept capable of shedding light on the question that it had to address from the perspective of consumer protection law. At [37], the CMA records that its discussions with stakeholders suggested that the two ways of thinking about onerousness in this context were: (a) whether the cost to the homeowner of the lease term exceeds the benefit received by the homeowner; and (b) whether the clause affects the marketability or saleability of property. The CMA thought that there was little value in trying to adopt a single definition, and in pursuing its investigation, it instead considered the definition of an unfair term under consumer law, i.e. “a term in a consumer contract is unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations under the contract, to the detriment of the consumer” ([39]-[40]);

The CMA Update Report estimated that there are approximately 3.5m ‘historic’ leaseholds with nominal or low ground rents (e.g. up to £50) ([68]). This represents a very large proportion of the total number of leaseholds. Developers and investors informed the CMA that the vast majority of the 778,000 new-build leaseholds sold between 2000 and 2018 were “modern” leaseholds, with annual ground rents typically at several hundred pounds and usually increasing over the term of the lease ([69]). The CMA noted that “data from developers indicates that the most prevalent form of increase in ground rent is by RPI” ([73]);

The CMA expressed the view that “[t]he consequences of ground rent obligations can be severe for homeowners creating difficulty in selling or mortgaging their homes, but the justifications for it given to us seem at best limited”, especially in relation to ground rents which escalate (either by periodically doubling or by keeping pace with RPI) ([3], [4], [77]-[78] and [80(a)]). The CMA stated that there was no persuasive evidence that home prices have been significantly reduced when compared with equivalents with peppercorn ground rents and “it is unclear how deferring some of the consideration would make the property more affordable, since the homeowner should end up with essentially the same total annual expenditure on mortgage interest and ground rent regardless”. It recognised that “leasehold properties sell for less than freehold properties, and there is a body of academic research that supports this proposition” but that “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”;

It also stated at [78] that “there are the most controversial escalators: the clauses that double more frequently than every 20 years. Not only do these convert annual payments into large sums quite quickly – and significantly above current rates of inflation – they may well create problems in selling or mortgaging a property because lenders either have policies that prevent lending against such properties or, in the absence of a policy, are likely to exercise a discretion that may lead them not to lend”;

The CMA’s investigation into unfair leasehold terms leading to its Update Report only focused on ground rent terms that double more frequently than every 20 years because it stated that these terms posed the most significant problems for consumers. However, the CMA noted that this was not the limit of its concerns or the limit of the escalation problems tenants face (with, for example, RPI escalation a further concern): [80];

At [3], [66]-[71] and [76]-[80] the CMA referred to an absence of evidence that ground rents were commercially necessary.

A concern that some ground rents were, or through the operation of contract revision mechanisms would become, “onerous”;

The perception, in a number of quarters, that ground rents were paid without anything being provided in return, and that the liability to pay them was not appropriately reflected in the price of a property;

The influence which ground rents had on the tenant’s ability to enfranchise, in circumstances in which the Term value of the premium was calculated by reference to the ground rents payable over the remainder of the lease. This had two elements. First, the general goal of making enfranchisement cheaper as a response to the general concerns about the leasehold model of ownership (of which the removal of the onerous element of a ground rent formed part). Second, and more specifically, that enfranchisement provided a means of escaping an adverse ground rent regime, although it was curtailed by the effect such ground rents had on the enfranchisement premium.

To the extent that the FVPV of a property rises during the period between the coming into force of the LFRA 2024 and the date a tenant seeks to enfranchise, the cap will increase over that time.

Where, at the date the tenant seeks to enfranchise, the ground rent is already at or over 0.1% of the FVPV, the figure used in the calculation of the Term element of the premium will be capped at 0.1% (with no allowance for any mechanisms which would have increased the ground rent over the remainder of the lease, such as an indexation clause or review mechanism).

Where, at the date the tenant seeks to enfranchise, the ground rent is less than 0.1% of the FVPV, but over the remainder of the life of the lease, it would at some point have increased above the FVPV at the enfranchisement, the Term calculation will only reflect anticipated increases up to 0.1% of the FVPV current at the valuation date for enfranchisement. That is so even if, at the date that increase would have taken place (e.g. at a 20 year review), the increased ground rent would not have exceeded 0.1% of the FVPV at that future review date. This consequence of the reform was understood by the Law Commission, because it is reflected in the worked examples at figures 22 and 23 of the Consultation Paper, the footnotes to which also acknowledged that a capped ground rent would lead to a higher capitalisation rate (a further factor leading to a lower Term value). It is also referred to at [6.126] of the Valuation Report.

No premium was payable on the original lease, so that the ground rent is the only consideration paid for the leasehold interest (para. 26(9)(a));

The current lease was granted on the basis that the premium was lower and the ground rent higher than would otherwise have been the case, with the premium being lower by an amount broadly equivalent to or greater than the capitalised value of the ground rent: i.e. the ground rent can properly be described as a deferral of part of the premium, rather than some additional amount: (para. 26(9)(b)).

We have summarised relevant principles at [128]-[139] above;

The claimants’ Joint Article 9 Statement at row 3 refers to statements referring to the imposition of a cap and at the level of 0.1% of FVPV, which they seek to rely upon for the purpose of showing that there was no discussion of some alternative cap. The admission of that material is opposed by the Speaker by reference to R (SC) v Secretary of State for Work and Pensions [2022] AC 223, [182]:

“If it can be inferred that Parliament formed a judgment that the legislation was appropriate notwithstanding its potential impact upon interests protected by Convention rights, then that may be a relevant factor in the court's assessment, because of the respect which the court will accord to the view of the legislature. If, on the other hand, there is no indication that the issue was considered by Parliament, then that factor will be absent. That absence will not count against upholding the compatibility of the measure: the courts will simply have to consider the issue without that factor being present, but nevertheless paying appropriate respect to the will of Parliament as expressed in the legislation.”

In circumstances in which the real issue between the parties, as we explain below, is the level at which the Ground Rent Cap was set and whether it was too low rather than the fact of a cap at some level, we accept that the potentially “relevant factor” identified in SC is not present. Beyond noting that that factor is not in play, we derive no assistance from the Parliamentary materials;

To the extent that reliance is placed on the suggestion that there is no evidence of Parliamentary consideration of the effect of a 0.1% cap on landlords, we would note that a significant impact on some landlords was clear from the IA which was before Parliament (and that it was obvious that the benefit to some tenants of the 0.1% cap necessarily came at the expense of the relevant landlords) – the IA estimating the reduction in amounts paid by tenants to landlords to enfranchise over the 10-year review period of £588m (2019 prices, 2025 PV). As noted at [282] above, that figure was revised to £1,151m in the Addendum IA. The IA also estimated that there were 900,000 leaseholds, in properties built since 2000, which were likely to contain some form of ground rent escalation provision (para.49);

We note, however, that the issue of seeking voluntary reform to leasehold terms was mentioned in the course of the Parliamentary debates and rejected. The Secretary of State’s speech on the Second Reading stated that “some landowners and freeholders … keep the ground rents at appropriately low level” but that “individual leaseholders should not simply have to rely on the good will and good character of whoever the freeholder is” (Vol 742, 11 December 2023 cols.655, 659).