[2025] EWHC 2751 (Admin)

The parties

There are six claimant groups.

The ARC claimants are 51 companies or funds in four distinct groups:

The C&G claimants are among the London “Great Estates”:

The Abacus claimants are based in the UK, Jersey or Guernsey and collectively hold and maintain freehold investments comprising approximately 200,000 houses and flats, located across England and Wales. Abacus estimated the total value of its portfolio in March 2024 to be £2.25bn. They estimate that the three measures under challenge would result in that value decreasing by £147m. The Abacus claimants provide an investment vehicle for UK-based pension funds and life insurance companies who face long-dated liabilities, and are attracted by investments in assets offering long-term income streams.

The Wallace claimants comprise Wallace Partnership Group Limited and its 16 property-owning subsidiaries which own and manage approximately 102,000 freehold and leasehold properties throughout England and Wales. The Wallace Group is itself a subsidiary of Albanwise Wallace Estates Limited, a diversified UK investment group focusing on agriculture, property and conservation, ultimately owned by the Padulli family trust. Wallace has issued loan notes to pension funds which are secured against the future income streams from its property portfolio, and which it funds from ground rent and enfranchisement premiums.

John Lyon’s Charity and its permanent endowment are constituted on the basis of a 16th century Royal Charter, its endowment derived from conveyances in 1578 and 1581 when the original land in St John’s Wood was acquired. For over 400 years, the income from that estate was applied to various local authorities that were responsible for the upkeep of what are now the Edgware and Harrow Roads. In 1991, the trustees were given a discretion to apply the income for charitable purposes for the benefit of inhabitants of the boroughs of Barnet, Brent, Camden, Ealing, Hammersmith and Fulham, Kensington & Chelsea and the Cities of London and Westminster. The Charity seeks to transform the lives of children and young people by creating opportunities to learn, grow and develop through education, and since 1991 it has distributed over £208 million in grants to a range of organisations that promote the life chances of children and young people. The Charity is able to spend income generated but cannot diminish the value of its endowment and it operates a ‘total return policy’ which enables it to use 3.5% of the average of the past four year’s total asset base to expend on operating costs and grants.

Finally, the Portal Trust was established as a charitable foundation (originally known as the Sir John Cass Foundation) in 1748, with an endowment which includes significant land and buildings in Hackney (“the Hackney Estate”). In the 19th century, the Portal Trust developed the Hackney Estate in order to fund its charitable activities, creating a suburban community of homes and commercial spaces which it managed until 1976. The principal object of the charity is now the promotion of the education of disadvantaged young people resident in fourteen London boroughs. In 1976 the Portal Trust granted two 99-year leases which extended to the whole of the Hackney Estate to a company now known as Sanctuary Housing Association (or “SHA”), which is a charity and a registered provider of social housing. The Hackney Estate now comprises 841 residential properties and 14 commercial properties.

The different classes of claimants in the litigation reflect a number of ways in which the identity of landlords, or the purposes for which reversionary interests are acquired and held, has changed since the first significant statutory intervention in this area in 1967, in some cases in response to economic opportunities which have been enhanced by rights of enfranchisement.

Taking ground rents first, there is some suggestion in the materials that for some time, these had, to a significant extent, been set at low and static levels (see for example, [5.50] of the Law Commission Consultation Paper No.238 of 20 September 2018. “Leasehold Home Ownership: Buying Your Freehold or Extending Your Lease” (“the Consultation Paper”)). One expert suggested that the LRA 1967 may have helped bring new insight into the economic opportunities ground rents presented, with ground rents being increased as part of an attempt to ensure houses did not qualify for enfranchisement, and being seen to create a significant income stream in the process.

More substantively, the material before us lends strong support for the suggestion that over the last 20-25 years, ground rents have come to be seen as a desirable asset class by certain classes of institutional investor. This development prompted a concentration of freehold ownership. It also encouraged some developers to sell leases of new houses and flats with increasing ground rents favourable to the landlord, so as to create assets for which there would be demand from institutional investors. The material suggests that one motive for creating revenue streams of this nature, rather than selling property on a freehold basis (or commonhold), was that the leasehold price and present value (“PV”) of the revenue stream sold would exceed the freehold price in the market.

The Department for Levelling Up, Housing and Communities (“DLUHC”) consultation paper “Modern leasehold: restricting ground rent for existing leases” of 8 December 2023 stated at [1.18] that:

“institutions (such as pension funds) have become involved in the residential ground rent market over the last 20 years, either through lending against a residential portfolio owned by a freeholder or directly investing and becoming the freeholder themselves. Investors put a proportion of their assets in very secure, long-dated, inflation-linked income streams which will, over that long term give them sufficient return to meet their financial obligations elsewhere.”

The DLUHC noted that “increased involvement from investors in the ground rent market” had been accompanied by the more frequent use of inflation-linked ground rent provisions, the value of which had grown considerably in the market for freeholds since 2007. At [1.19], the report referred to surveys conducted by the Investment Property Forum of 42 institutional investors. In 2012, ten respondents owned ground rents worth £137m. Two years later, eight respondents owned ground rents worth £1.5bn, and the following year, they held ground rents worth £1.9bn. The Residential Freehold Association has estimated that there is a total investment in residential reversions of £30bn, of which £15bn is held by pension funds (see also para.3.2.3 of the first witness statement of Ms Colton filed by the ARC claimants and para. 17 of the first witness statement of Mr Platt a senior executive in the Wallace Group). To provide context for those figures, R (BT Pension Scheme Trustees Ltd) v UK Statistics Authority [2022] EWHC 2265 (Admin); [2023] Pens. L.R. 1 refers at [120] to evidence in that case that assets managed by institutional investors, including pension funds, so as to match their liabilities amounted to £1.2 trillion in 2018. Generally liability-driven investment has relied upon index-linked gilts.

The statistics provided to us suggest that around 52% of the 950,000 freehold titles in England and Wales are held by private individuals, around 38% by companies and around 11% by others, such as housing associations, developers, and the public sector. It has been estimated that these 950,000 freeholds are owned by around 426,000 freeholders.

That concentration of ground rent ownership (certainly by value) means that the aggregate financial impact of the LFRA 2024 on particular freeholders, such as many of the claimant groups, will be extensive. However, when reviewing the evidence as to that impact, it is important to keep in mind two points. First, the overall figures represent the accumulation of a substantial number of “per leasehold” figures. Second, the effect of the impact depends also on the size of the overall investment by a landlord in both reversionary interests and other types of asset, and also the percentage reduction in that investment, on which the information before the court is relatively incomplete.

A particular feature of the emergence of freeholds as a popular asset class was the increasing use of leasehold for housing estates by many developers simply for the purpose of generating a marketable income stream, rather than because some feature of the development necessitated use of the leasehold model: see for example the Ministerial Foreword to the Department for Communities and Local Government Consultation Response, “Tackling unfair practices in the leasehold market – a consultation paper” (published in December 2017) which noted:

“Over the past 20 years, the proportion of new-build houses sold as leasehold has more than doubled. Huge numbers of properties – including standalone houses with no shared facilities or fabric – are being sold as leasehold simply to create a reliable revenue stream for whoever owns the freehold. In some parts of the country it’s now almost impossible for a first-time buyer to purchase a new-build home on any other basis”.

The attraction of freeholds as an asset class is not limited to the receipt of ground rents. Evidence from Mr Platt was that one attractive feature of such investments was “the prospect of enfranchisement premiums provides a potential for capital receipts in future”. One of the four freehold portfolios owned by the Wallace Group contains “leases of flats and houses that are all shorter in length (less than 100 years) and therefore generate significant income by way of lease extensions and freehold enfranchisements year-on-year” (para. 52 of his first witness statement). Mr Platt explains that “it is generally possible for Wallace to estimate, with a reasonable degree of accuracy, approximately how many leases are likely to be subject to applications to be extended and/or enfranchised in a given year, and therefore to estimate the year-on-year income generated by Wallace’s property portfolios” (para.55).

For John Lyon’s Charity, too, the regular receipt of enfranchisement premia forms part of its intended and anticipated income stream which is used to fund its very worthwhile and carefully targeted charitable spending. Dr Lynn Guyton, Chief Executive of the charity, gave evidence that the charity “derives a significant part of the capital required for our charitable giving from enfranchisement premiums”, with the charity working on the basis that there will be 1 to 3 large enfranchisements a year.

Another notable feature of most of the claimants was the extent to which their freehold interests were concentrated in London, and in those parts of London referred to by valuers as “Prime Central London” (“PCL”) where property values are particularly high. London has a particular concentration of leasehold property, both in terms of numbers of properties and (particularly) in aggregate value. There was evidence before us which suggested that 15% of the total leasehold dwellings (houses and flats), and 35% of flats, are in London. However, 68% of flat value transfer is located there. We have been told that 14% of all leasehold flats in London are to be found in three boroughs (Westminster, Kensington and Chelsea, and Camden), with 47% of the potential “marriage value” on London flats in those three boroughs, and 32% of the figure for England as a whole. Those particular features of the London property market featured in the consideration given to leasehold enfranchisement in the run up to the LFRA 2024, but we have kept in mind at all times that the challenges have been brought to a statute which applies throughout the country, with the clear majority of freeholds affected being found outside London.