[2025] EWHC 2751 (Admin)

On 30 November 2019, the Law Commission obtained a legal opinion from the late Catherine Callaghan KC on the compatibility with A1P1 of various options for reform. The opinion was later published alongside the Valuation Report. It is not necessary to set out the advice given on particular issues, but we were referred to [60] of the opinion:

“A key factor affecting the compatibility of the scheme with A1P1 will be the aims and objectives of the eventual scheme. For example, if the primary aim of the scheme is to remedy perceived injustice faced by leaseholders, that will have a bearing on the scope of the reforms (including the identity of those who are to benefit from the reforms) and will feed into the assessment of proportionality, including the degree of scrutiny (or conversely, deference) the courts will apply to the scheme. If the Government’s aim is to reform the leasehold enfranchisement system in order to make enfranchisement more simple, quick and cost-effective, that will change the scope of the scheme and the proportionality assessment accordingly. If the Government’s aims are more ambitious – for example, deliberate redistribution of wealth from one group (landlords) to another (leaseholders) or even ending the system of leasehold altogether – that will also feed into the nature and scope of the scheme and the assessment of where the fair balance is to be struck in terms of compensation.”

Similarly, when addressing the abolition of marriage value at [100], the opinion notes that the objects of any reform will have significant implications for any A1P1 analysis. These observations are consistent with the approach taken in the Consultation Paper (see [210] above). The Law Commission had not sought at that stage to define what the objects of the eventual legislation would be. It noted that the Government might seek to advance a number of different objects through reform in this area, but the particular object(s) which it decided to pursue would be relevant not only to the terms of any legislation but also its A1P1 implications.

On 8 January 2020 the Law Commission published a report dealing with valuation entitled “Leasehold home ownership: buying your freehold or extending your lease - Report on options to reduce the price payable” (Law Com No 387) (the “Valuation Report”). The Valuation Report was published in advance of the report on other areas of proposed reform because the Government had asked the Law Commission to prioritise its consideration of this issue. The claimants relied on the reference to “home ownership” in the title, but when the Valuation Report is read fairly and as a whole, the objects of the analysis and recommendations were not confined to improving the position of tenants who are resident occupiers. The object in the ToR which the Valuation Report addressed – “to examine the options to reduce the premium (price) payable by existing and future leaseholders to enfranchise whilst ensuring sufficient compensation is paid to landlords to reflect their legitimate property interests” – was not confined to tenants of any particular type. However, having regard to A1P1, the Valuation Report considered whether “sufficient compensation” payable to landlords might vary for different types of tenant.

The Law Commission’s approach to identifying the objects of any reform, and the means by which those objects might be realised, reflected the political sensitivities of some of the issues.

Early on in its Valuation Report at [1.9]-[1.10] the Commission identified fundamental problems with leasehold ownership:

“1.9

So we refer to “buying” or “owning” a house or a flat. But when we buy on a leasehold basis, we are in fact buying a house or flat for a certain number of years (after which the assumption is that the property reverts to the landlord). A leasehold interest is therefore often referred to as a wasting asset: whilst it may increase in value in line with property prices, its value also tends to reduce over time as its length (the “unexpired term”) reduces. There comes a point when the remaining length of the lease makes it unsaleable, because purchasers cannot obtain a mortgage (since lenders will not provide a mortgage for the purchase of a short lease).

1.10

In addition, leasehold owners often do not have the same control over their home as a freehold owner. For example, they may not be able to make alterations to their home, or choose which type of flooring to have, without obtaining the permission of their landlord. The balance of power between leasehold owners and their landlord is governed by the terms of the lease and by legislation.”

The Commission referred to existing enfranchisement rights as having gone “some way” to overcoming the problem of owning a wasting asset [1.13].

The Valuation Report rehearsed arguments on the inherent unfairness of leasehold interests and the counter-arguments ([1.20]-[1.21] and [3.4]-[3.10]). The Report noted the following:

“Some landlords have suggested that the strong views that we have heard from leaseholders are not representative of all leaseholders, and that reform should not be based on the unrepresentative view of an aggrieved minority.”

The Commission said that they did not agree with that view and went on to refer to evidence of widespread dissatisfaction amongst leaseholders as well as the concerns of a substantial number of MPs who are members of the APPG [3.4]. At [3.11] the Commission said:

“These competing views are genuinely held and irreconcilable. Decisions about which side to favour, and how to strike the balance between the competing interests, depend to a large extent on political judgment”.

At [3.60]-[3.99] the Commission rehearsed the rival views on whether enfranchisement premiums should be reduced. It did not express a view of its own on whether premiums should be reduced, stating that that question “involves considerations of law, valuation, social policy and, ultimately, political judgment” (see [4.1]).

By contrast, the Law Commission did express views on the complexity and unpredictable nature of the current process for fixing the enfranchisement premium, the unequal positions of landlords and tenants as a class within that process, and the problem of onerous ground rents ([3.12]-[3.58]).

In Chapter 5, the Law Commission summarised the responses to Options 1 and 2 as set out in the Consultation Paper. So far as Option 1 was concerned, while acknowledging strong support for Option 1A from tenant consultees in particular, the Law Commission stated that the Option 1 proposals were very unlikely to be compatible with A1P1, and therefore they were not put forward as options for a new valuation scheme aimed at reducing premiums ([5.33] and [5.42]).

Instead, the Commission advanced three alternative “Schemes” which reflected “three different assumptions about the market in which the landlord’s interest is being valued” [5.85] and [5.90]-[5.91] (the approach to which Lord Walker referred in Sportelli – see [187] above):

At page 15 of the summary of the Report, the Law Commission said that:

“each scheme results in a premium that can be described as the ‘market value’ of the landlord’s asset, by reference to that assumed market. It is what the landlord can expect to receive for his or her interest in that market.”

At [5.101] and [5.102] the Commission referred to arguments for and against taking into account, or disregarding, the tenant’s special bid (see [400] below). At [5.103] the Commission described the benefits of Scheme 1 as providing compensation to landlords based on a market value of their interest and reducing premiums for tenants with terms having 80 years or less to run by removing marriage value from the sum payable.

In Chapter 6 of the Valuation Report, the Law Commission identified various measures which could be used in combination with any of the above approaches:

In introducing this topic, the Valuation Report stated at [6.180]:

“In so far as our Terms of Reference require us to improve the position of leaseholders as consumers and reduce premiums, they are aimed at improving the position of home-owners as opposed to leaseholders who own a lease as an investment”.

The suggestion that the ToR objective of reducing premiums is solely aimed at home-owners, and not tenants who own a lease as an investment, does not appear from the ToR themselves. When addressing this topic, the Law Commission noted that differential pricing might justify a lower premium for owner-occupiers which nevertheless complied with A1P1 ([6.183]), but they identified arguments which “lean against making such a distinction” ([6.185]), including difficulties of definition and additional complexity ([6.196]), unfairness for some landlords and for some tenants ([6.197]-[6.198]) and possible distortions of the market ([6.200]). The Law Commission’s conclusion was that there were “significant drawbacks” in differential pricing as between different categories of leaseholder, but “it would be possible to do so”, making the point that the desirability of this course would depend on the Government’s legislative choices and their A1P1 implications ([6.202]-[6.203]):

“If Government wishes to reduce premiums to a level that cannot be justified under A1P1 if it applied to all leaseholders, then it would be necessary for Government to create such a distinction.

…

If Government does decide to differentiate between different categories of leaseholder, there are various ways in which the distinction could be framed … The best way to do that depends on Government’s objective in giving owner-occupiers a more favourable basis of valuation.”

Although the Law Commission identified a number of possible objects of reforming legislation, and noted the potential implications of the objects for A1P1 purposes, it made it clear that it was for the Government, and ultimately Parliament, to determine what the objects should be. Nevertheless, by the time the Law Commission produced its final report in July 2020, its thinking on the inherent defects of leasehold and the imbalance between landlords and tenants had crystallised (see below).