[2025] EWHC 2751 (Admin)

The financial impact of a Ground Rent Cap on landlords is obvious: it deprives landlords who, at the date of enfranchisement, were already receiving or would in due course receive ground rents above 0.1% of the FVPV from the benefits of that “excess” when calculating the “Term” element of the enfranchisement premium. While the question of whether the cap is exceeded and if so, the extent of any excess, may depend in some cases on when an enfranchisement claim is served, we accept that, in aggregate terms, this will have a significant impact on landlords. The precise distribution of that impact will depend on how many enfranchisement notices a particular landlord receives, and the level of current and future ground rents of the subject properties. The significant aggregate financial impact was clear from the IA and even more so from the Addendum IA, and that 10-year assessment period used in those assessments would obviously not capture effects outside that period.

However, in assessing the significance of that impact, the following matters are relevant:

The impact of the Ground Rent Cap on tenants was to reduce the cost of enfranchising for those tenants who were subject to ground rents which did, or would in due course, exceed the level of the cap and, specifically, the ability of tenants paying “high” or “increasing” ground rents to avoid that liability by enfranchising.

Ultimately, the fair balancing of those interests is affected by the level at which the cap is set. For that reason, the claimants mounted a lengthy attack on the 0.1% figure, suggesting it had no or no sufficient evidential basis, and failed fairly to balance the landlords’ and tenants’ interests for that reason.

A 0.1% figure features prominently in the pre-legislative material which we now summarise.

In Millard Investments Limited v The Earl of Cadogan and Cadogan Estates Ltd LON/LVT/1756/04, a decision of a Leasehold Valuation Tribunal (“LVT”) on 15 December 2004, the issue arose of “what would be an acceptable level of ground rent” for the property in question. Reference was made to another LVT decision in Leslie v The Cadogan Estate (2000). The Millard LVT accepted expert evidence to the effect that a palatable ground rent should be no more than 0.1% “on the specific facts of this case”, while stressing that “this percentage is not intended to be taken as a guide in future cases”. This decision, and its influence on other tribunal decisions and market perceptions, was referred to by the Law Commission in its various papers.

A 2009 RICS paper, “Leasehold Reform Graphs of Relativity”, described an “onerous” ground rent as one that had the effect of depressing the leasehold value of the property and thus its relativity as against the freehold value. It expressed the view that “the level of rent which has no effect on value [that is, the leasehold value] is generally accepted to be in the range of 0.05% to 0.25% of the freehold vacant possession value”. Clearly the 0.1% figure falls within that range.

The Upper Tribunal (Lands Chamber) in Roberts v Fernandez [2015] UKUT 0106 (LC) also considered when a ground rent was onerous. In that case, ground rent within the RICS range (0.21%) was not treated as onerous, it being said that “certain LVT” decisions suggesting 0.21% was onerous were “inconsistent” with the RICS paper and did not constitute evidence.

On 11 May 2017, the Nationwide Building Society adopted new lending criteria, and would not lend on newbuild properties where the ground rent exceeded 0.1% of the FVPV.

Nationwide’s lending criteria were referred to on a number of occasions by the Law Commission, not always consistently. The Consultation Paper referred at [16.56] to “the Nationwide Building Society’s new lending policy” of 0.1% (without specific reference to new buildings). The Valuation Report at [3.52], when stating that valuers had conventionally viewed a ground rent of above 0.1% as onerous, stated “the Nationwide Building Society’s lending policy is not to lend on properties with a ground rent over 0.1%” (again without reference to new buildings). However, at [6.122], the 0.1% was stated to be applied by Nationwide to “new properties”. The Enfranchisement Report at [3.93] was essentially in the same terms as, and cross-referred back to, the Consultation Paper.

The 2017 UPP at [4.18] referred to Nationwide changing its lending criteria for new build properties, as did the summary of consultation responses of December 2017 at [19]. Significantly, that paragraph also stated:

“Some pointed out that Nationwide’s decision to change its lending criteria for new build leasehold properties (referred to in para. 50) had been misinterpreted by conveyancing solicitors as applying to existing leases, resulting in some leaseholders being forced onto less favourable mortgage terms”.

At [56], when considering the position of consultees who opposed limiting ground rents to a peppercorn, the most common suggestion of what a reasonable ground rent should be was 0.1% of the property’s value.

The Law Commission noted at [1.32] of its Consultation Paper that in March 2018, the Welsh Government had announced a new requirement for its “Help-To-Buy” scheme that “ground rents would need to be limited to a maximum of 0.1% of the property’s sale value”.

At [3.52] of the Valuation Report, the Law Commission stated that:

“There is no set definition of an onerous ground rent, though it seems to have become generally accepted in the market (reflecting a view that has conventionally been held by valuers for many years) that a ground rent above 0.1% of the property’s freehold value is onerous”.

At [6.122], the Law Commission stated that “we understand that it is now widely accepted that a ground rent above 0.1% of the property’s freehold value is ‘onerous’”.

In a letter of 10 April 2025, sent in response to an enquiry by one of the firms of solicitors acting for the claimants as to the basis for these paragraphs, the Law Commission stated:

“Our references to a 0.1% threshold, and a cap set at that level, drew on a range of factors, including lenders’ policies, Tribunal decisions, general understanding and conventions among experts in the sector, a Select Committee report, and the consultation responses we received. We expressed our own conclusion on them, and set out an option for reform for Government to consider. In the footnote to paragraph 3.52, as you note, we refer expressly to some of these sources from which that view stems, including Millard Investments Ltd v Cadogan (LON/LVT/1756/04) and The Nationwide Building Society’s lending policy for new-build properties. We also referred to another case, Roberts v Fernandez (LRA/14/2014), in which a ground rent of 0.21% was suggested to be onerous. We also refer in that footnote to the Housing, Communities and Local Government Committee’s Report, “Leasehold Reform” (Twelfth Report of Session 2017-19). At paragraph 91 of that Report, the Committee wrote that in its view (having heard evidence from a range of stakeholders): Any ground rent is onerous if it becomes disproportionate to the value of a home, such that it materially affects a leaseholder’s ability to sell their property or obtain a mortgage. In practical terms, it is increasingly clear that a ground rent in excess of 0.1% of the value of a property or £250—including rents likely to reach this level in future due to doubling, or other, ground rent review mechanisms—is beginning to affect the saleability and mortgage-ability of leasehold properties. The view we expressed in paragraphs 3.52 and 6.122 also stemmed from other sources. The CML Handbook at the time (now superseded by the UK Finance lenders’ handbook) indicated that a number of lenders other than Nationwide had some sort of lending criteria based on the 0.1% threshold. Moreover, many of the almost 1,100 consultees who responded to our consultation “Leasehold home ownership: buying your freehold or extending your lease” (Consultation Paper No 238) referred to ground rents of above 0.1% as being onerous. As we noted at paragraph 6.138, of the consultees who supported a restriction on the level of ground rent that is taken into account in enfranchisement valuations, over half favoured a cap at 0.1% of the freehold value. We published all the consultation responses we received on our website. As we note above, our references to the 0.1% level in our Report constituted our own conclusion concerning the level above which ground rents would generally be considered onerous. We therefore set out an option (rather than a recommendation) for reform, for Government to consider:

Our discussion of the ground rent cap was about identifying, as a matter of legal policy, a suitable threshold above which legitimate concern can be raised about the level of ground rent in a lease – in other words, a threshold above which ground rents could properly be considered to be onerous.”

It is apparent from that letter that the Law Commission had drawn on a number of sources in suggesting 0.1% as the appropriate cap. The claimants sought to take some comfort from the words “a suitable threshold above which legitimate concern can be raised about the level of ground rent in a lease”, suggesting, “in other words it goes further than setting a threshold that is tailored to capture the worst excesses in the market and designed to be the least intrusive measure.” That comment was based upon the wrong legal test, “least intrusive measure”, rather than the correct test, “less intrusive measure”. Furthermore, it ignored the following words in the letter, “in other words, a threshold above which ground rents could properly be considered to be onerous”.

The Law Commission’s letter and its reports referred to the HCLGSC Report. The claimants objected to any reference to this report to establish what they say is a contentious issue of fact, having regard to Article 9 of the Bill of Rights and the decision in Office of Government Commerce v Information Commissioner [2008] EWHC 774 (Admin); [2010] QB 98. It is not necessary for us to refer to the report and engage with this debate, although we note that Parliament would have been under no similar inhibition about informing itself as to the contents of that report when framing the Ground Rent Cap. The Government response to that report, published in July 2019, stated “in practical terms, it is increasingly clear that a ground rent in excess of 0.1% of the value of a property or £250 – including rents likely to reach this level in future due to doubling, or other, ground rent review mechanisms – is beginning to affect the saleability and mortgage-ability of leasehold properties” (page 18 and [48]).

The DLUHC consultation paper “Modern leasehold: restricting ground rent for existing leases” of 8 December 2023 discussed at [1.28] the impact of ground rents on mortgagees’ assessments of affordability, and stated that “evidence suggests that above certain threshold (often £250 or 0.1% of the freehold value of the property) some either have policies that prevent lending or, in the absence of a policy, are likely to exercise a discretion that may lead them not to lend.” At [1.51], the consultation paper stated, “the percentage that we hear called for most often is a cap of 0.1% of the property’s value, on the basis that ground rent above this can adversely affect a person’s ability to get a mortgage on that property, according to the criteria set by some mortgage providers”.

The IA of 31 October 2023 also addressed the 0.1% figure. It noted at [50] that “many” lenders were using a 0.1% threshold to determine “whether to lend” or at least “seek further checks”. At [136], the IA referred to “clear evidence that the 0.1% cap is used as a benchmark by sectors of the mortgage industry, causing delays and difficulty for leaseholders in securing a mortgage and selling their property.”

On the basis of this material, we do not accept the argument that there was no sufficient evidential basis for the conclusion given legislative effect in the LFRA 2024 that the Ground Rent Cap should be set at 0.1%. Parliament was entitled to conclude that ground rents of 0.1% of FVPV represented a fair cost for the consideration provided and that, above that level, there was a sufficient concern of ground rents affecting saleability or mortgageability to merit legislative intervention. For that reason, the calculation of the Term element of an enfranchisement premium with a ground rent input which did not exceed 0.1% did not have the effect that the premium ceased to be “reasonably related to market” value, because its effect would be to remove only “onerous” ground rents from the calculation. The selection of 0.1% falls well within the legislative margin of appreciation.

The claimants’ attack on that conclusion involved placing evidence before the court of the lending practice of different financial institutions which were said to be inconsistent with the material which underpinned the choice of 0.1% in the LFRA 2024 (to which the Secretary of State responded). That material did not come close to persuading us that there was no proper evidential basis for the selection of the 0.1% cap, and if anything pointed to the contrary conclusion:

We are satisfied that this material provides a more than sufficient evidential basis for Parliament’s decision to set the cap at 0.1%. It sufficed that this was clearly a threshold of some significance in many lending contexts (even if only by triggering a more intensive scrutiny and consequent delay for achieving a binding contract). It also fell within a range recognised by the RICS and market practitioners above which a ground rent is capable of reducing the value of a leasehold property and in that sense is onerous. In setting the 0.1% cap, Parliament was entitled to have in mind the interaction of ground rents with other factors influencing the terms on which mortgage offers might be made, and to choose a “forward leaning” rate, which would also allow for the fact that lending criteria might change over time if and when the mortgage market tightened.

We can deal more briefly with the other complaints advanced by the claimants at this stage of the A1P1 enquiry: