[2025] EWHC 2751 (Admin)

On 21 July 2020 the Law Commission published the Enfranchisement Report. The Enfranchisement Report was published alongside two other final Law Commission Reports, one dealing with the right to manage and the other with commonhold [1.4]. Chapter 1 explained how the three reports fit together so as to address (A) how home ownership currently works and its problems [1.14] – [1.43]; (B) the reforms proposed by the Commission and by Government [1.44] - [1.68]; and (C) how the reforms fit together [1.69] – [1.96].

Unsurprisingly, there is much continuity between the Enfranchisement Report and its predecessor publications. However, the report plainly takes a committed position on the inherent defects of leasehold as a model of property ownership. It reiterated the problems of leasehold ownership at [1.15] – [1.18], including leasehold as a “wasting asset” and concerns over reduced control by tenants ([1.15]-[1.16]).

At [1.19] there is some additional and important analysis by the Commission of the problems under the heading “Leasehold as a valuable asset for landlords”:

“As we go on to explain below, these inherent features of leasehold ownership are the root cause of many criticisms that have been levelled at it as a mechanism to deliver home ownership. Conversely, these features of leasehold ownership are the very reason that it is an attractive investment opportunity, and a valuable asset, for landlords.

(1)

Since a lease is a time-limited interest, there will come a point when the leaseholder needs to extend the lease or buy the freehold in order to retain the property. The leaseholder has to pay the landlord in order to do so. In addition, throughout the term of the lease, the leaseholder will usually have to pay ground rent to the landlord, which provides a source of income for landlords.

(2)

The landlord’s control over the property provides a further source of income. For example:

(a)

landlords can charge leaseholders a fee for certain actions, such as giving consent to alterations to a flat, or for registering a change of ownership when a leaseholder sells his or her flat; and

(b)

landlords can receive income indirectly through the service charge that leaseholders are required to pay for the costs of maintaining their block or estate. For example, the premium for insuring a block will be paid by the leaseholders, but when arranging the insurance policy the landlord might receive a commission from the insurance company. Similarly, the landlord might arrange for the services at a block (such as for management, for cleaning, or for repair work) to be undertaken by an associated company.”

At [1.25] the Commission posed the question “What is wrong with leasehold ownership?” and referred to “a growing political consensus that leasehold tenure is not a satisfactory way of owning residential property”. At [1.50] the Commission made this significant statement:

“Our Terms of Reference are not neutral. They require us to make recommendations that would alter the law in favour of leaseholders. They indicate a policy conclusion reached by Government that the leasehold system in its current form is not a satisfactory way of owning homes.”

That hardening of view also appeared in an article published by one of the Law Commissioners, Professor Hopkins, together with Jonathan Mellor, who was one of the relevant Law Commission team, entitled “‘A Change is Gonna Come’: Reforming Residential Leasehold and Commonhold” (2019) Conv 321, which is extensively cited in the Enfranchisement Report. The article observed of the Law Commission and the Government’s work on leasehold reform at p.330 that “lying at the heart of the work is an acknowledgement that leasehold ownership has failed to deliver the benefits associated with being an owner, and that the systemic problems with leasehold mean that the tenure is ill-equipped to do so” (quoted at [1.70]). The article also referred to “a growing political consensus that leasehold tenure is not a satisfactory way of owning residential property” and to “the power-imbalance experienced by leaseholders.”

The problem of systemic inequality between tenants and landlords as a class was reiterated ([1.27]), together with certain ways in which the current law was open to abuse. It was noted at [1.32] that “however fairly the system is operated, inherent limitations of leasehold remain” and at [1.33]:

“All of the criticisms summarised above derive, at least to some extent, from those inherent limitations – namely that the asset is time-limited, and that control is shared with the landlord.”

At [1.46] the Commission referred to the objective of re-invigorating commonhold so that leasehold is no longer needed and added:

“Our starting point in this [commonhold] project is that it is not necessary for leasehold to be used as the mechanism for delivering home ownership. Rather, commonhold can be used instead, and we would go as far as to say that it should be used in preference to leasehold, because it overcomes the inherent limitations of leasehold ownership set out above.”

However, the Report recognised that there are leaseholds which continue to exist and in relation to which specific reforms are necessary.

At [2.16] the Commission turned to address “problems with the current law”, beginning at [2.17]-[2.19] with the “inherent unfairness of leasehold tenure”. The Commission’s own analysis expressed the wasting asset problem in these terms at [2.18]:

“Leaseholders buy a time-limited interest, frequently at a value close to – or even equivalent to – the freehold value. As the term of a long lease diminishes, its saleability and its usefulness as mortgage security also diminishes, particularly once there are fewer than 80 years remaining on the lease. Leaseholders – or their successors in title – often find themselves compelled to make an enfranchisement claim either:

(1)

because they wish to sell their home and a purchaser can only be found (or will only be able to obtain a mortgage) if the length of the lease is extended; or

(2)

because they know that the cost of doing so in the future will likely be higher.”

The Commission adopted essentially the same reasoning at [12.31] as part of its justification for recommending the Costs Recovery Reform.

A number of the recommendations made in the Enfranchisement Report led to reforms in the LFRA 2024, including:

Chapter 6 of the Enfranchisement Report, addressing the qualifying criteria for tenants to obtain enfranchisement rights, returned to the subject of a possible distinction between owner-occupiers and other types of tenants. This issue was discussed at [6.372]-[6.391]. At this point the Enfranchisement Report accepted that “it may be desirable to restrict the enfranchisement rights of commercial investors”, and that there was “arguably” less of an imperative to assist them, with enfranchisement being “primarily aimed at helping homeowners obtain security of tenure in (and control of) their homes” [6.387].

Then at [6.388] the Commission recommended against drawing such a distinction:

“However, in practice we do not think that implementing such a distinction – in respect of which leaseholders have rights and which do not – is workable or desirable. It would be difficult to distinguish accurately between commercial investors who should not benefit from enfranchisement rights, and those who should, and attempting to restrict the former may well disenfranchise the latter. Consultees raised problems with both of the options we suggested in the Consultation Paper, from the avoidance mechanisms which might arise through a reduced definition of a residential unit, to the difficulties a reintroduced residence test may cause for various types of leaseholders (for example, those required to hold their lease through a company).”

The Commission added that to make this distinction would also add undesirable complexity to the regime [6.389]. However, at [6.391] the Commission referred back to the discussion in the Valuation Report of the drawing of a distinction between owner-occupier and other tenants at the valuation stage, “depending on where Government wishes to draw the line.”

In respect of non-litigation costs, the Enfranchisement Report summarised the problems the Law Commission had identified with the existing law as regards costs recovery included the difficulty for a tenant to predict, at the start of an enfranchisement claim, the amount of costs they are likely to have to pay, the expense of challenging any costs claimed, and the consequent incentive on tenants to accept less advantageous terms rather than risk a higher costs bill ([12.7]-[12.11]). The Law Commission’s key recommendation 10 was:

“We recommend that the answer to the question of whether leaseholders should continue to be required to contribute to their landlords’ non-litigation costs should depend on which option is adopted for the valuation of the premium payable. If Government adopts a broadly market-value based approach, then we recommend that leaseholders should (in most cases) no longer be required to contribute to their landlord’s non-litigation costs. However, if Government adopts a valuation methodology that is not broadly market-value based, we recommend that leaseholders should continue to be required to contribute to their landlord’s non-litigation costs, but that the amount paid should be set by a fixed costs regime. These recommendations will make the exercise of enfranchisement rights more cost-effective for leaseholders”

This was on the basis that, if a market-value based methodology were to be adopted, tenants should not generally be required to make any costs contribution on successful completion of the claim because a price agreed on an open market sale reflects the fact that the parties are expected to pay their own costs ([12.29] and [12.56]).

The Enfranchisement Report makes much reference to “homes” and “home ownership” (in particular in Chapter 1). However, the use of “home-linked” vocabulary did not indicate that the Law Commission had now moved to framing the object of the suggested reforms as being (and only being) to improve the position of owner-occupiers. Nor does the use of the word “home” imply the exclusion of non-owner-occupiers. Thus at [1.70(1)] the report refers to “Leaseholders of existing homes”, stating “it is estimated that there are at least 4.3 million leasehold homes in England and Wales” (a figure which includes the 1.8m leasehold properties owned by private landlords as well as the 2.2m owner-occupiers). In other words, “homes” simply refers to “dwellings” in the absence of any other language to indicate that owner-occupation is the intended meaning. In many contexts, the use of the phrase “home owners” appears to emphasise ownership, not whether the owner has made the property their sole (or main) residence (e.g. [2.3]).

At [1.51] the Report stated:

“Our Terms of Reference refer generally to providing ‘a better deal for leaseholders as consumers’. Our recommendations for reform are therefore intended to make the law work better for all leaseholders.”

Bearing in mind that this was a final report following extensive consultation, which expressed firm criticisms of the inherent features of leasehold ownership, the placing of these two aims alongside each other, linked by the word “therefore”, is telling. The recommendations about reform were aimed at improving the position of all leaseholders, not just resident occupiers, and the word “consumer” was used in the same sense.