[2025] EWHC 2751 (Admin)

The claimants submit that the exclusion of marriage value from enfranchisement compensation is not justified by the aim of seeking to redress the imbalance between landlords and tenants of residential long leases and addressing the inherent unfairness of leasehold as a model of property ownership. They argue that case law establishes that the equal division of marriage value involves a fair outcome in the assessment of the price for enfranchisement. It is said that the Secretary of State, and ultimately the legislature, have misunderstood the effect of that case law and so their striking of a fair balance between landlords and tenants is flawed.

The short answer is that (1) the claimants’ argument misunderstands, or effectively ignores, the nature of the imbalance in the relationship between landlords and tenants identified, (2) the case law cited by the claimants does not deal with that imbalance and (3) it has fallen to the legislature to take a political decision on whether to take steps to redress that imbalance.

Before the enfranchisement code was enacted the landlord held all the negotiating cards as to whether the tenant would be granted any additional interest at all (see [394] above). By giving tenants a right to enfranchise, the code has removed that particular imbalance. But there remains the imbalance to which the Law Commission has referred. The reforms in the LFRA 2024 apply to a leasehold model which broadly involves a tenant making a relatively similar overall outlay as the purchaser of a freehold. But the wasting nature of a leasehold compels a tenant to make a claim to enfranchise in order to protect and restore the value of that investment by making a payment, which may be substantial, and incurring fees in addition to the premium originally paid and any rental obligation.

This raised a political question for the Government and the legislature as to the basis upon which that additional payment should be assessed, bearing in mind the consideration which a tenant will have paid for the grant of a long lease in the first place. Given the constitutional separation of functions between the legislature and the judiciary, that is not an issue for the courts, save and in so far as it arises on a challenge to the compatibility of legislation with A1P1. In the cases cited to us, the court was not asked to address any such challenge. Instead, the decisions were concerned with the interpretation and application of domestic legislation, including the statutory valuation scheme for enfranchisement as it stood.

Accordingly, UK courts have not previously been asked to address the socio-economic need accepted by Government and the legislature to redress the wasting asset problem and the continuing imbalance between landlords and tenants; nor the solution chosen of removing marriage value from enfranchisement compensation, whilst maintaining the entitlement of landlords to receive term value (subject to the 0.1% Ground Rent Cap) and reversion value.

Nevertheless, Mr Jourdan relied on a number of cases which had considered the concept of “marriage value” in the context of United Kingdom compulsory purchase legislation in support of his contention that “marriage value” is inherent in a valuation reasonably related to market value, and that it reflects an aspect of a landlord’s proprietary interest in a property. We have already observed that cases addressing compensation for “distinct expropriations” represent a very different context to legislation such as the LFRA 2024 ([107]-[115] above), and that the measure of compensation adopted for distinct expropriations under UK law has its own distinct history, in which measures of compensation relating to market value and marriage value have varied over time ([184]-[189] above). But in any event, we do not consider the compulsory purchase cases provide the assistance which Mr Jourdan suggests.

The first, Lambe v Secretary of State for War [1955] 2 QB 612, was an unusual case. A building and its grounds were occupied as the headquarters of a Territorial Army unit which had bought a 99-year lease with only 41 years unexpired. Two years later the Secretary of State served a notice to treat upon the officer who held the freehold reversion. It appears from the decision of the Lands Tribunal that the only purpose of the acquisition was to merge the leasehold and freehold interests in order to be freed from restrictive covenants in the lease ((1953-54) 4 P & CR 230). The basis upon which compensation was to be assessed for that freehold reversion had to be determined. Applying the legislation on compensation for compulsory purchase, the Court of Appeal decided that the compensation for that interest should be what the sitting tenant would be willing to pay in a friendly negotiation and as though no compulsory powers had been obtained. Thus, the tenant’s purpose in seeking to marry his interest with that of the landlord fell to be taken into account, just as it would in an open market transaction. The Court applied Raja Vyricherla Narayana Gajapatiraju v. Revenue Divisional Officer, Vizagapatam [1939] AC 302, at 312 (“the Raja case”), in which it was held that although the motivation of a particular purchaser (e.g. a sitting tenant) to bid more than others in the market is relevant, that bid must not be assessed as though he were acting under compulsion or urgent necessity.

In Waters v Welsh Development Agency [2004] UKHL 19; [2004] 1 WLR 1304, when considering the ambit of the legal principle for disregarding an acquiring authority’s scheme in compensation for a compulsory purchase, Lord Nicholls approved Lambe at [37]. The amount that the sitting tenant would have been willing to bid, including marriage value, was a relevant consideration, which remained unaltered by the fact that the tenant was also the acquiring authority.

In Lambe the Army was content to take an assignment of a lease with only 41 years unexpired. Neither Lambe nor Waters were decided in the context of the wasting asset problem and the imbalance issue which the enfranchisement code and the reforms introduced by the LFRA 2024 seek to address. Both were concerned with “distinct expropriations”.

Next Mr Jourdan turned to case law on the LRA 1967. In Lloyd-Jones v Church Commissioners for England [1982] 1 EGLR 209 the tenant’s bid had to be taken into account in assessing the price payable for the enfranchisement of the freehold reversion of a house. There was no issue as to whether that bid would include a share of marriage value. The Tribunal applied the “friendly negotiations” approach in Raja and Lambe and decided that the parties were of equal bargaining strength when it came to deciding how marriage value would be apportioned and so that element was divided 50:50. But the reason why the Tribunal decided that the bargaining strengths were equal was that “neither can unlock marriage value without the other”. It is plain that that was simply the Tribunal’s judgment as to how the hypothetical sale of the freehold would be conducted for the purposes of the statutory valuation exercise in the specific context created by the leasehold model of property ownership. The statement that neither party could unlock marriage value without the other says nothing about the tenant’s wasting asset problem which gives rise to the need for him to buy out the landlord’s interest in the first place by having to make an enfranchisement claim. Of course, that is not a criticism of the Tribunal’s decision. The wasting asset problem, any need for the enfranchisement code to be reformed, and the application of A1P1 were not before the Tribunal.

In Sportelli Lord Neuberger referred at [61]-[62] to Lloyd-Jones and other decisions of the Lands Tribunal to point out that tenants who had argued for the landlord to receive a smaller share of marriage value than 50% had been unsuccessful. But as he said, that was simply a valuation matter. Neither Sportelli nor those decisions dealt with the wasting asset problem which the LFRA 2024 was intended to address.

Likewise Trustees of the Sloane Stanley Estate v Mundy [2016] UKUT 223 (LC); [2016] L.&T.R. 32 (see e.g. [126]-[128]) and Cooper-Dean (e.g. [71]-[73]) do not address that problem and do not assist this court.

As Lord Hoffmann explained in Sportelli, the particular type of marriage value with which the enfranchisement code is concerned is only generated because long leaseholds are wasting assets. That is the very problem which the amendment of the code is intended to address. Accordingly, the Marriage Value Reform is justified because marriage value is the product of the wasting asset problem and the inherent unfairness in the long leasehold relationship which it is the object of the enfranchisement code to address.

Next Mr. Jourdan submitted that the pre-LFRA 2024 enfranchisement code has existed for decades and is reflected in the market prices paid for leases and reversions. He suggested that there would therefore have to be strong evidence of serious problems to justify the changes under challenge and any changes would need to be carefully targeted to solve the problems of those affected without creating windfalls for others. Mr. Jourdan addressed this topic in paras.15 to 20 of his skeleton and in his oral submissions.

He submitted that when long leases of residential premises are assigned, the prices paid reflect the benefits of the right to enfranchise and the anticipated cost of enfranchisement under the valuation code before amendment by the LFRA 2024. Similarly, when a reversion is sold the price paid is based not only on the present value of the rental stream contracted to be paid, but also the expectation of additional profits through the realisation of a share of marriage value.

The problem with an argument of this kind is the corollary: socially desirable or necessary amendments to legislation should not be made because over the years parties have made their arrangements with a claimed expectation that the scheme will not be changed. This is really a variant of the retrospectivity argument which we have addressed at [152]-[160] above. However, the making of commercial or property agreements does not of itself give rise to a reasonable expectation that an existing statutory regime will remain unchanged in the face of reform which the legislature judges to be necessary.

Parties may choose to arrange their affairs on the basis of legislation as it exists and hope that it will not be amended, but in doing so they take the risk that it may change and, indeed, in ways which may be unpredictable. That risk has certainly been present in enfranchisement from an early stage, as is evidenced by the number and nature of the changes which have been made to the regime from 1969, and the manner in which the legislature has continued to re-visit what was seen as presenting a continuing social problem which prior legislation had not sufficiently addressed. The issue of reform has frequently been under consideration and the wasting asset problem has been a perennial problem (see for example the quotations from the 2000 Consultation Paper at [66]-[67]).

It is also significant in this respect that entities which have accumulated significant holdings of freeholds have done so as a form of commercial activity, which necessarily involves the assumption of risk for reward, and the balancing of sector-risk across a wider portfolio, and that the landlord-tenant relationship is one which was itself brought into being for commercial gain. This is a relevant factor in the proportionality analysis (see AXA, [38]). Whereas the purchase of a reversion to obtain a steady stream of a non-onerous level of rent over a long time frame might be considered to be a relatively risk-free investment, the same cannot be said of the purchase of a reversion to reap payments of marriage value and hope value. Quite apart from the fact that marriage value is a once and for all payment, the timing and amount of which is unknown until an enfranchisement claim is made, it is the product of the wasting asset problem which has remained a candidate for reform.

Furthermore, there has been no attempt to show that, over time, it can reasonably be assumed that any “pricing-in” of the pre-existing enfranchisement code into the acquisition or assignment of a lease or a reversion has affected landlords and tenants in a similar way, whether the original parties to a lease or assignees of an interest. Similarly, it has not been shown how reforms could be targeted so as to reflect the winners and the losers resulting from the combined effects of any pricing-in of the pre-existing enfranchisement code and the reforms in the LFRA 2024. Furthermore, bearing in mind the “broad sweep” of legislation of this kind, we note that in James at [68]-[69] the ECtHR was not troubled by the ability of certain tenants to make windfall profits, even where they were not occupiers (see [164] above and see also Wilson No.2 at [72]-[74]).

In any event, the justification for excluding marriage value from enfranchisement compensation has been shown to be strong. The inherently imbalanced and unfair relationship between landlords and tenants arises from the fact that, although there may be little difference between prices paid for freeholds and newly granted leases (and insufficient properly to reflect the differences between them), the latter is a wasting asset which declines in value to nil. The fundamental nature of this wasting asset problem applies to long leaseholds of dwellings generally as a form of tenure, irrespective of the purpose for which a tenant under a long lease holds his property. Tenants come under compulsion to enfranchise in order to protect and restore the value of their assets, and also so that they can remain marketable and mortgageable. Despite the consideration they have already paid (and may be obliged to continue paying by way of rent and service charges), enfranchisement requires tenants to pay a further price. It is justifiable for the LFRA 2024 to remove marriage value from the price for enfranchisement, because that element of value only arises because of the wasting asset problem and the inherent imbalance and unfairness in the long leasehold relationship which it causes. Enfranchisement fails to deal fairly and logically with that imbalanced relationship caused by the wasting asset problem, in so far as it requires a tenant to pay to his landlord 50% or any part of the marriage value generated by that imbalance.

On the other hand, Parliament has fairly addressed the landlord’s position by retaining compensation for term value (subject to the 0.1% Ground Rent Cap) and reversion value. Term value and reversion value together represent the value which the landlord could obtain in the open market from a third party. It is logical to disregard hope value as well as marriage value because both arise from a necessity for the tenant (or a successor in title) to enfranchise to address the wasting asset problem. This level of compensation provides the landlord with the sums he would have received for the wasting asset that was originally granted to the tenant, as if the lease were to run its full course.

Next, Mr. Jourdan submitted that where marriage value does arise, whatever the reason for the making of an enfranchisement claim, the tenant acquires an asset which is more valuable than the combined values of his lease and the freehold reversion and it is only fair that he should pay a half share of the additional value thereby created. He relies upon the then Government’s draft Bill and the 2000 Consultation Paper: which shows the thinking on marriage value underlying the CLRA 2002. At that stage the Government was of the view that “in a compulsory purchase, landlords are entitled to a fair market price for their interest in the building, including a share of the marriage value which would normally occur in an open market sale between willing parties when leasehold and freehold interests are merged” (para.71). The language would suggest that this reasoning was influenced by the decision in Lambe.

But circumstances have changed since 2000 and thinking has moved on. The CLRA 2002 has not prevented continuing concern as to the adverse social effects of the leasehold property model, which has remained a topic of political and legislative concern. Further, an unintended consequence of the requirement in the CLRA 2002 that marriage value be disregarded where the unexpired term of a long lease exceeds 80 years was that leases with shorter terms remaining were treated as unsuitable for mortgage lending, became more difficult to sell and declined in value. Subsequent consultation exercises have revisited the nature of the economic relationship between the parties to long residential leases. We have explained the wasting asset problem and the imbalanced relationship resulting in tenants coming under compulsion to make enfranchisement claims requiring additional expenditure on their part. The exclusion of any marriage value arising from an enfranchisement valuation has been justified for the reasons already set out.

True enough, a landlord is compelled by the legislation to sell his reversion. Some may be unwilling vendors for their own reasons. But from the evidence we have seen, others, including some very substantial landlords, are in reality willing vendors because of their valuable opportunity to receive “income” from enfranchisement premiums, including marriage value. Not all claims to enfranchise are therefore unwelcome to respondent landlords. But there is a difference between freehold reversioners and enfranchising tenants. All of the former hold a permanent, non-wasting asset. All of the latter hold a time-limited asset depreciating to nil. In general, the latter are under a compulsion to enfranchise to stop their asset depreciating to a nil value, and to be able to sell it as and when they wish to or use it as a means of raising capital for other purposes. That is so, even if some of the tenants (e.g. investors) wish to realise the value of their newly merged freehold and leasehold asset, including the uplift attributable to marriage value.

Accordingly, we do not accept that it would be right in economic terms to look at an enfranchisement claim as simply a compulsory acquisition of the landlord’s interest. Quite apart from cases where the landlord is very much a willing vendor, it is also necessary to take into account the compulsion of the tenant to enfranchise at an additional cost to the investment he has already made in the dwelling in order to address the wasting asset problem. There is no data available to us to show the proportions of landlords and tenants who are acting either under compulsion or willingly when participating in an enfranchisement process. But in our judgment the comparison with compulsory purchase compensation drawn in the 2000 Consultation Paper presents an incomplete picture of the reality of enfranchisement claims generally and is therefore not a good analogy. The obligation placed by the enfranchisement code on landlords to sell their interests does not undermine or reduce the weight to be given to the justification for excluding marriage value in the valuation in order to address the wasting asset problem.

Some landlords complain that the reforms in the LFRA 2024 present some tenants with an opportunity to make a windfall profit by selling his enfranchised interest soon afterwards. Even if this should occur, the valuation examples we have been given show that, depending of course on the variables involved, the movement of marriage value in a manner adverse to the landlord and in favour of the tenant may simply offset the cost to the tenant of part or all of the term value and reversion value payable to the landlord and the tenant’s own costs. Sometimes there may be a profit for the tenant, but:

Ultimately, the claimed losses suffered by landlords do not undermine the justification for the Marriage Value Reform. Instead, they should be considered in the striking of the fair balance after having addressed less intrusive measures.

So far as these costs are concerned, Mr. Maurici relies on the criticisms made by his clients’ experts of the IA and the Addendum IA, including the errors accepted by the defendant, as showing that those assessments were inadequate as the basis for deciding whether the substantial interference with the A1P1 rights of his clients and landlords generally is justified. We have explained in section 8 above why we reject that submission.

Next Mr. Maurici advances the criticism that the Marriage Value Reform is untargeted because, according to analysis by Mr. Hunt, the removal of marriage value will disproportionately impact London, in particular PCL (see e.g. [4.4] of Mr Hunt’s first report, [48] of Mr. Maurici’s skeleton and the parties’ Agreed Statement F). We summarise the following points:

The claimants submit that even after allowing for the fact that some flats will be let because the owner is working abroad for a period or the owner is unable to sell, so that those properties may only be sublet temporarily in the private rental sector, a large proportion of flats will be investment properties. For example, the owner may prefer to invest in property or may let a flat or flats as part of a pension plan. The claimants go on to point out that there is a high degree of overseas ownership of houses in PCL.

Accordingly, the claimants contend that the adjustment of marriage value in tenants’ favour is, by reference to the value of properties, likely to benefit mainly tenants in London who are investors rather than resident occupiers. In PCL there is an increased likelihood that the adjustment of marriage value will benefit overseas investors in leaseholds of flats.

We do not consider that the claimants’ points, even taken at face value, undermine or significantly reduce the weight to be given to the justifications for the Marriage Value Reform. In summary:

For completeness we mention a further argument raised by Mr. Jourdan. He pointed to data suggesting that about 20% of freeholds are owned by companies owned by tenants, who have exercised their rights to collective enfranchisement before the LFRA 2024 comes into force. If some tenants in the block did not participate in the claim to enfranchise, the participating tenants will have had to fund the claim in relation to the non-participating flats, including any payment due in respect of marriage value. If when the Marriage Value Reform comes into force the tenant of a non-participating flat exercises a right to enfranchise, they will not have to pay marriage value to the company, causing a loss to the tenants who originally participated in the collective enfranchisement. It is said that this involves an adjustment of marriage value in favour of one tenant at the expense of other tenants, rather than as between landlords and tenants as is the case in the general context for enfranchisement.

Mr. Loveday pointed out on behalf of the defendant that this issue was raised by the Law Commission in para.3.72 of its Valuation Report (No.387) and was answered at para.3.91. Mr. Jourdan accepted that this issue does not go to any of the DoIs we are asked to grant. It is inherent in reform of this kind that differences will arise between the position of those who exercised their right of enfranchisement before a reform and those who exercised it after, and tenants who exercised their right of collective enfranchisement before the LFRA 2024 and assumed the status of landlords ran the risk that the position of non-participating tenants might be improved by subsequent legislation in the same way that other landlords did. The argument that the effect of legislation which permitted some form of collective enfranchisement was to “freeze” the law in its existing iteration to avoid differences in the position of participating and non-participating tenants is not a realistic one. We do not consider this point takes matters any further.