[2025] EWHC 2751 (Admin)

We take into account our previous reasoning and conclusions in this section of the judgment without seeking to summarise all of that material.

Compensation terms are relevant to the assessment of whether the contested measure respects the requisite fair balance and does not impose a disproportionate balance on landlords. The key issue in the striking of the fair balance is whether the removal of marriage value from enfranchisement compensation, with or without other measures of the LFRA 2024, results in compensation which is not “reasonably related” to a landlord’s freehold reversion of which he is being deprived.

The enfranchisement valuation code and the LFRA 2024 contain general socio-economic measures in the public interest and, although they are applied in due course to individual properties, the measures themselves are not to be treated as “distinct expropriations” (see Scordino v Italy (No.1) at [97]-[98] and James at [154]). Promoting economic, social or political reform may justify a substantial departure from full compensation.

The scope and degree of importance of the public interest, here the imbalance in the landlord and tenant relationship to be addressed, is to be weighed against the nature and measure of the compensation to be provided (Urbárska at [126] and SRM at [56]).

In James the ECtHR accepted in relation to the original enfranchisement code under the LRA 1967 that it sufficed that a landlord would receive compensation for the value of his investment in the ground, although that excluded merger value in relation to that asset [56]. Here, the Marriage Value Reform will leave intact the landlord’s entitlement to the investment value of his interest in the ground and dwelling after excluding marriage value.

The issues relating to the reform were considered at great length and in detail by the Law Commission, officials and Ministers. They were also the subject of consultation, a process of engagement with stakeholders such as the claimants and debate in Parliament (with access to the earlier reports and IA). For the reasons given above, we remain of the view that a wide margin of appreciation should be given to the approach taken in the LFRA 2024.

Parliament was justified in treating the imbalance and unfairness in all long leasehold relationships where in practice residential property is bought for a substantial premium as a matter which needed to be remedied. The Marriage Value Reform is justified because marriage value arises during the term of a lease (and even then for part only of that term) as a result of the wasting asset problem and the imbalance it creates. Given that the right to enfranchise is intended to remedy that problem, it would be illogical and unfair for the code to require a tenant to pay any part of that value to his landlord. The assessment of the fair balance was not flawed because the Government misunderstood case law or any other relevant legal principles.

For these reasons it follows that the parties’ estimates of the scale of the effect of the Marriage Value Reform on landlords and tenants, whether viewed globally or for individual transactions, is not a significant factor weighing against the making of the Marriage Value Reform. Essentially those estimates have simply quantified the scale of the marriage value issue which results from the wasting asset problem and which needs to be rectified as enacted in the LFRA 2024.

Likewise, it is incorrect for the claimants to say that the Marriage Value Reform is untargeted or improperly targeted. It is a structural measure aimed at remedying a problem affecting all leaseholds, irrespective of whether the tenant resides in his dwelling or is a small, or indeed large, investor or is based overseas. For the same reasons, the alternative measures which have been suggested do not qualify as relevant “less intrusive measures”. They would not achieve the aim of the Reform.

Even allowing for the effect of errors which have been accepted by the defendant, the IA provided to Parliament was adequate for the purposes of assessing the issues raised by A1P1 within the parameters given. In addition, the court has the benefit of the Addendum IA and the additional data and numerical analysis relied upon by the claimants. We have had regard to all of that material.

Bearing in mind that the Marriage Value Reform is a general social measure rather than a distinct expropriation, it is appropriate for us to consider the economic effects of that measure (and other measures) upon landlords and tenants as a whole and likewise the claimants. But we also bear in mind that the movement of marriage value away from the claimants (and others in a similar position) in favour of tenants will be large because of the numbers of properties in their portfolios and, in some instances, the high values of properties in London. We also take into account the evidence provided by the claimants on the effect of the Marriage Value Reform (including immediate effects) on the value of their interests and the management of their estates. We also note that whereas Abacus provided a total value of their portfolio with which their claimed loss can be compared, not all claimants did the same.

It is also relevant to consider the effect of the Marriage Value Reform at the level of individual transactions. For example, the Addendum IA suggests that the average increase in value for leases in England with 80 years or less to run is of the order of £18,000 or 6-7%. Estimates have also been provided for average annual costs per lease for landlords. We also bear in mind issues raised by the claimants as to the accuracy of certain of the defendant’s figures.

Taking into account all the material before the court, we accept the defendant’s submission that these effects on landlords, whether taken individually or globally, are clearly and substantially outweighed by the effects of the wasting asset problem, the consequent unfairness of tenants having to pay to their landlords part of the marriage value resulting from that socio-economic problem and the need for the Marriage Value Reform as a remedy across the board. Transfers of an extended leasehold or freehold interest from landlord investors to tenant investors without payment of marriage value are not objectionable under A1P1 given the strong social and economic justification for that Reform.

Our conclusion takes into account the fact that a landlord will remain entitled to the investment value of his interest in the land and dwelling, that is the term value (subject to the Ground Rent Cap where the rent is onerous) and reversion value, after excluding marriage value (and hope value). That does represent the open market value of the landlord’s interest as if the wasting asset granted by the landlord, the lease, had run to its end, or he had sold his interest in the market to a third party. In addition to the premium paid on the grant of the lease and all the other lease costs borne subsequently, the tenant will still have to bear that enfranchisement price and his own professional fees, although those costs may be offset by any marriage value from which he benefits. That is the tenant’s contribution to dealing with the wasting asset problem. The overall distribution of costs between landlord and tenant reflects the compulsion the tenant is under to enfranchise in order to prevent his asset becoming unmarketable and eventually having no value. Accordingly, we conclude that the Marriage Value Reform does not require a landlord to bear the sole burden, or an excessive burden, of dealing with the wasting asset problem.

The solution adopted by the Marriage Value Reform for excluding marriage value involves a statutory assumption that the enfranchising tenant (or other relevant party) is not seeking and will never seek to acquire the freehold reversion (or other relevant interest). That approach to defining market value is consistent with the observations of Lord Walker in Sportelli at [34] (see [187] above). It is also compatible with the changes from time to time in Parliament’s directions on market value assumptions in legislation dealing with compensation for compulsory purchase which, as a distinct expropriation, must normally satisfy a higher standard in order to be reasonably related to the value of the property, namely “full compensation” (see [107] and [179]-[182] above).

For all these reasons we conclude that with the Marriage Value Reform in place, the premium payable to a landlord for enfranchisement represents compensation which, for the purposes of A1P1, is reasonably related to the market value of the interest that is the subject of the deprivation. The legislation strikes a fair, proportionate balance.