[2025] EWHC 2751 (Admin)

Fecha: 24-Oct-2025

The legislative history

The legislative history

53.

Both sides relied extensively on the conclusions which it was said were to be drawn from the history of leasehold enfranchisement legislation in England and Wales. We have summarised that history in the introductory section, and provide a fuller account now, before explaining the changes effected by the LFRA 2024.

54.

It was common ground between the parties in an Agreed Statement that the evolution of the legislation in this area was correctly summarised by the Law Commission at [2.3]-[2.5.2] of its Consultation Paper. This section of the judgment draws extensively on that summary.

55.

While the issue of leasehold reform had generated much debate since the latter part of the nineteenth century, the first general intervention was the LRA 1967 in relation to leaseholds of houses. The LRA 1967 followed the 1966 White Paper which made it clear that the reform was intended to remedy what was perceived to be the unfair operation of the existing law from the perspective of the occupying tenant. The 1966 White Paper noted (in para. 1) that while the landlord had provided the land, in the majority of cases, it was the tenant or its predecessor in title who had constructed the property (which appears to be a reference to building or development leases). Whether or not that was so, it was “the lessee and his predecessors who have borne the cost of improvements and maintenance”. The Government’s view was that it was “quite indefensible” for the landlord to acquire ownership of the house at the end of the term without paying anything for it. The basic principle of the reform was that “the freeholder owns the land and the occupying leaseholder is morally entitled to the ownership of the building which has been put on and maintained on the land.” While those comments, and the resultant legislation, were concerned with the position of the occupying tenant, they identified issues in the model of leasehold real property interests of potentially wider application. For example, para. 3 stated:

“Two circumstances make reform a matter of urgency. First, most people buy their house on mortgage and for them the leasehold system works particularly harshly. A purchaser on mortgage may pay virtually the freehold price for a lease with a good many years to run but as he reaches the end of his mortgage term he will feel a sharpening sense of injustice. He will realise that after he has discharged the mortgage he will have an interest far less valuable than it was when he bought it, and difficult to sell because a subsequent purchaser may not be able to get a mortgage.”

56.

The LRA 1967 only applied to houses (not flats) and only to houses below a certain value as determined by the application of the “low rent test” and other limits based on the rateable value of the house. There was also a requirement that the house had been occupied by the party seeking to enfranchise as their sole or main residence. The LRA 1967 created two rights of enfranchisement:

A right to acquire the freehold on payment of a price to be determined in accordance with s.9 of the LRA 1967. This was “the amount which at the relevant time the house and premises, if sold in the open market by a willing seller, might be expected to realise” on a number of assumptions, including that the sale was subject to the tenancy as capable of being extended under the LRA 1967. The valuation formula effectively limited the landlord to compensation for the value of the site and not the building;

ii)

The right to extend the lease for a single period of 50 years, but at a “modern ground rent” representing the letting value of the site, but not the building.

In each case, the enfranchising tenant was to pay the reasonable non-litigation costs of effecting the enfranchisement.

57.

In determining the market value for the freehold, the LRA 1967 was silent on the question of whether the tenant was to be assumed to be a competitor in that market, so that the open market price would reflect some part of any marriage value. Two decisions of the Lands Tribunal held that such an assumption was indeed to be made under the LRA 1967 (Custins v Hearts of Oak Benefit Society (1969) 209 EG 239 and Haw v Peek (1969) 2010 EG 347). Those decisions were reversed by the HA 1969 which excluded from the hypothetical market in which “open market value” was to be assessed “the tenant and members of his family residing in the house”. Tenants who fall within the original ambit of the LRA 1967 do not have to pay anything in respect of marriage value as part of the landlord’s compensation.

58.

The next legislative intervention in this area was the HA 1974 which:

increased the value limits which determined whether rights of enfranchisement under the LRA 1967 would be available; and

ii)

for enfranchising tenants benefiting from those increased value limits, amended the basis for the landlord’s compensation to include the tenant’s bid (so the issue of whether marriage value was a relevant element in the calculation of the enfranchisement premium depended on whether the dwelling met the original low value limits in the LRA 1967);

iii)

for those same tenants, no longer sought to limit the landlord’s compensation to site value.

59.

The LRA 1967, the HA 1969 and the HA 1974 together set out the applicable UK legislative regime for leasehold enfranchisement when the ECtHR determined the challenge to that legislation brought by certain landlords in James.

60.

A statutory right of leasehold enfranchisement in relation to flats, rather than houses, raised greater complications, because a single freehold reversion would relate to a number of different flats, with each tenant having a shared concern in issues such as the insurance and maintenance of common parts and the external structure. A right of leasehold enfranchisement for flats was first introduced by the LRHUDA 1993. That Act was passed against a backdrop of additional concerns relating to the “split” ownership model between freehold reversioners and tenants. For example, it left landlords in control of certain management functions, the costs and consequences of which were borne by tenants through the mechanism of service charges.

61.

But there was a more general concern about the structure of leasehold ownership which led to proposals for a new form of tenure, commonhold. There is a helpful summary of the evolution of those proposals in Hague: Leasehold Enfranchisement (7th edition) at paras.1-11 to 1-12. The Law Commission produced a report in 1987. That was followed by a consultation by Government which referred to what were seen as inherent problems in the leasehold system, namely the bias in the relationship of landlord and tenant in favour of the former and the nature of a lease as a wasting asset.

62.

In its response to the consultation (July 1991) the Government introduced proposals for “collective enfranchisement”, that is a right for the tenants of a block of flats acting collectively to acquire the freehold of the building and to take over responsibility for management functions. This was seen as a first step towards commonhold and became the focus of the next legislative intervention.

63.

The LRHUDA 1993 made the following changes:

It created a right of collective enfranchisement for tenants in a block of flats, provided certain qualifying requirements were met. These included (a) at least two-thirds of the tenants in the block had leases of over 21 years at a low rent; (b) no more than 10% of the floorspace of the building (excluding common parts) was used for non-residential purposes; (c) not less than one-half of flat owners and two-thirds of qualifying tenants participated in the claim; and (d) participating tenants had to satisfy a residence test;

ii)

It gave individual qualifying tenants meeting the residence test the right to extend their lease by 90 years;

iii)

It adjusted the financial restrictions on lease enfranchisement imposed by the LRA 1967 and removed those imposed by the HA 1974.

64.

There are two features of the LRHUDA 1993 which should be highlighted at this point, one relied upon by the claimants, and the other by the Secretary of State:

The amount payable to exercise rights of enfranchisement allowed the landlord to obtain compensation reflecting open market value, including a share of marriage value and any loss of development potential;

ii)

The rationale of the reforms ceased to be a desire to address hardship on the part of tenants who were seen as particularly deserving, but rather a desire to address what were seen as structurally unfair features of the leasehold model of property ownership: the fact that the tenant acquired an asset which reduced in value over time (as the landlords’ residual and corresponding element of the “split ownership” increased in value), and the fact that it left tenants at the mercy of landlords so far as decisions relating to the property which remained in the landlords’ hands were concerned. The Law Commission, at [2.17] of the Consultation Paper, summarised the position as follows:

“This rationale reflected a shift away from leasehold as a form of tenure generally. It represented a feeling that the wasting nature of leaseholds, and leaseholders’ general lack of control, rendered leasehold unfit for purpose. This policy direction was certainly contributed to by the anticipation of the invention of commonhold as a new form of ownership, but the anti-leasehold feeling ran somewhat more widely than that.”

65.

Further significant changes to the statutory enfranchisement scheme were effected by the Housing Act 1996 (“the HA 1996”) which significantly reduced the application of the low rent tests under the LRA 1967 and for all claims under the LRHUDA 1993. The avowed purpose of this measure was to reduce the complexity of the enfranchisement process, which was identified as an object of statutory reform in its own right.

66.

These reforms notwithstanding, the leasehold model of residential property ownership remained a topic of concern. Further Government proposals and consultation followed: in 1998 “Residential Leasehold Reform in England and Wales – A Consultation Paper” and in 2000 “Commonhold and Leasehold Reform – Draft Bill and Consultation Paper” Cm 4843 (“the 2000 Consultation Paper”) were published. The Ministerial foreword to the latter referred to “many drawbacks” in the leasehold model, including that “an investment in a home steadily loses value as the lease approaches the end of the term”. In identifying the benefits of the proposed reform, the 2000 Consultation Paper stated at Annex A paras. 6 and 7 that “leaseholders often complain of the behaviour of landlords who exercise their rights to collective service charges and to expend them with little or no consultation” and “leasehold interests are wasting assets”, with the lease being surrendered at the end “with nothing to show for the investment of the original premium or, often, a significant proportion of the annual service charge.” A second section of the 2000 Consultation Paper noted at [1] that “the Government consider that the existing residential leasehold system is fundamentally flawed”, with “the balance of power … heavily weighted in favour of one party (the landlord) at the expense of another (i.e. the leaseholders)”. It put forward proposals, including “right to manage” provisions and reforms to the collective enfranchisement regime, intended to “address the uneven balance between landlords and leaseholders, and give leaseholders a greater degree of control over the management of their homes which reflect the substantial investments they have made” ([3]). The continuity between the perceived deficiencies in the leasehold model of ownership addressed in the 2000 Consultation Paper, and those later referred to in the Consultation Paper produced by the Law Commission in 2020, is striking.

67.

These proposals were carried forward in the CLRA 2002:

Commonhold was introduced as an alternative to the “split ownership” freehold/leasehold model;

ii)

The residence test under the LRA 1967 in relation to houses was replaced by an ownership requirement;

iii)

The residence test for collective enfranchisement under the LRHUDA 1993 was also replaced by a two-year ownership requirement (the 2000 Consultation Paper having noted that such a reform would “benefit leaseholders who occupy their flat as a second home or sub-let” (page 112, [14]) and “ensure that people who occupy leasehold flats as second homes or sub-let them have a remedy to the wasting asset problem” (page 156, [9]), with an ownership requirement to prevent short-term speculation);

iv)

Save for certain excluded cases, the “low rent” qualifying requirement was removed under both LRA 1967 and the LRHUDA 1993;

The percentage requirements for collective enfranchisement were made less demanding;

vi)

“Marriage value” was removed from premium calculations for leases with more than 80 years to run (the 2000 Consultation Paper noting that the Government had concluded that “landlords are entitled to a fair market price … including a share of the marriage value which would normally occur in an open market sale”: page 111, [9], 149, [71]);

vii)

In cases where “marriage value” was to be assessed, it was to be split “50-50” between the tenant and the landlord.

68.

Taking the abolition of the residence requirements first:

The Law Commission noted in 2018 that one justification for the abolition of the residence requirement under the LRA 1967 was that the test unfairly excluded from enfranchisement some tenants who used their dwelling personally (e.g. as a second home convenient for the workplace or the temporary letting of a dwelling while working abroad) and therefore had not acquired the property purely for investment purposes (Consultation Paper [2.24]). As we have noted, the 2000 Consultation Paper intended the abolition of the residence test to cover both second homes and property which is sub-let. The ownership test was introduced to deal with those who bought leasehold property in order to make short-term speculative gains from enfranchisement.

ii)

The Law Commission also noted that the abolition of the residence requirement was justified on the basis that: “it is impossible to devise a fair, workable and unambiguous qualifying test that relies on such a slippery concept as residence” and “as we have already explained in the context of the right to manage and collective enfranchisement, when considering eligibility for leaseholders' rights we believe that the key principle should be the extent of their stake in the property rather than their length of residence” (see the references at footnote 87 to the Consultation Paper at [2.26]).

69.

Turning to the Marriage Value Reform:

The 80-year rule was intended to simplify enfranchisement by avoiding arguments as to the remaining length of lease at which consideration of marriage value might arise. It was also intended to reverse what was seen as an unintended consequence of the LRHUDA 1993 which appeared to have led to an element of marriage value being included even where a lease had more than 80 years to run. The reform reflected a judgment that there was, at best, minimal marriage value in leases with over 80 years to run. But the legislation has had a significant and unintended consequence. The Law Commission’s Consultation Paper noted at [2.28]:

“The effect in the market of marriage value being payable where leases have less than 80 years to run, but not where leases have more than 80 years to run, has been dramatic, rendering leases of less than 80 years effectively “short leases”.
…
In other words, such leases are not generally considered to be adequate security for lenders, and are accordingly more difficult to sell.”

ii)

The 50:50 split was intended to reflect the existing consensus in the tribunals, and avoid costly argument that a departure from that consensus was appropriate in a particular case.

70.

The Housing and Regeneration Act 2008 abolished the low rent test for freehold acquisition claims under the LRA 1967, and in relation to all leases commencing on or after 7 September 2009. This measure was intended to simplify the process of lease enfranchisement. Further limited changes were made by the Housing and Planning Act 2016 to those provisions of the LRA 1967 and the LRHUDA 1993 concerning the valuation of minor intermediate leasehold interests, changes intended to overcome difficulties in operating the existing valuation formulae for those purposes.