The government has successfully defended a legal challenge brought by a consortium of major freeholders over the Leasehold and Freehold Reform Act (LAFRA) 2024, marking a significant moment in the ongoing reform of leasehold law.
The judicial review, heard between 15 and 18 July, was brought by several prominent freeholders, including Arc Time Freehold Income Authorised Fund, Alpha Real Capital LLP, Cadogan Group Limited, Grosvenor Limited, Abacus Land 1 (Holdco 1) Limited, Wallace Partnership Group Limited, John Lyon’s Charity, and the Trustees of the Portal Trust.
The High Court on Friday 24 October dismissed the legal challenge brought by major freeholders against the Leasehold and Freehold Reform Act 2024.
Commenting on the outcome, Mark Chick, ALEP director and Senior Partner at Bishop & Sewell LLP, said: “At the centre of the dispute were unimplemented sections of LAFRA, specifically those relating to the removal of marriage value, which the freeholders had challenged under Human Rights law. Marriage value is a key element in the calculation of lease extension and freehold purchase premiums. The claimants argued that the abolition of marriage value and the resulting loss of income amounted to a breach of their human rights, alleging that it deprived them of property without fair compensation.
“The High Court rejected the freeholders’ arguments, finding that the government’s approach was lawful and proportionate. The ruling paves the way for ministers to proceed with implementing the remaining provisions of LAFRA, which were delayed pending the outcome of this case.
“The decision is widely seen as a necessary step in clarifying the legal position around leasehold enfranchisement and is essential to advancing future reforms, specifically the potential introduction of commonhold through a future Leasehold and Commonhold Reform Bill. Until now, uncertainty around the legality of these provisions had stalled further progress and the government had indicated that the Draft Bill would not be published until the case was resolved.
“While the government’s legal victory is being viewed as a major milestone, few expect the issue to end here. The claimants are expected to seek leave to appeal, potentially taking the case to the European Court of Human Rights.
“This leads to the inevitable question, will the Draft Bill now be published, as was initially anticipated to take place in the autumn, or will it continue to be delayed?
“Additionally, victory for the government means that theoretically it is free to move ahead with the implementation of remaining provisions of LAFRA. But will this happen? It would be a bold move given that it’s more than likely that this was simply a first-instance decision in relation to the position of the unimplemented legislation under Human Rights law. There is the prospect of a UK appeal and then possibly an onward appeal to the European Court of Human Rights. Strategically, the government will be considering options carefully and of course, we wait to hear from the freeholders about what they will do.”
The outcome will be watched closely across the legal, property and political sectors. For now, the judgment represents an endorsement of the government’s reform agenda, but it leaves unanswered questions over the potential for further leasehold reform.
The ruling, in favour of the government and leaseholders, is the next step in the long journey to make it less expensive for millions of leaseholders to extend their leases or buy their freeholds.
Linz Darlington, managing director of Lease Extension specialists, Homehold commented: “The High Court’s judgement includes three major wins for the Government and the estimated 4.5 million leaseholders in the UK.”
He lists the wins as:
+ Abolition of Marriage Value: When you extend your lease or purchase your freehold, your home will jump up in value. Under current rules, if your lease is below 80 years, you must share half of this hypothetical profit with your freeholder. The High Court have decided that this should be removed, because the freeholders are fairly compensated for their loss by other parts of the calculation.
+ Capping Ground Rent in Lease Extension Calculations: Many leases have ground rents which rise at an alarming rate – sometimes to thousands of pounds a year. When you do a lease extension you must pay a sum of money to “buy out” this future ground rent and the Act will make this cheaper by capping the ground rent in the calculation at 0.1% of the flat’s value.
+ Freeholder Pays their own costs: Under the current rules, a leaseholder must pay their own legal and valuation fees, but also that of their freeholder. The Court allowed the new “each side pays their own” cost regime – which will make it cheaper for leaseholders.
While this ruling is an important next step in the leasehold reform journey – it is not the end of the battle. It seems likely that this decision will be appealed, and the outcome might be different. The government has also said that it needs to complete further consultation on the rates and percentages used to calculate the cost of lease extensions – but has held off until today’s outcome. Only once these rates have been set will leaseholders know whether their lease extension will be cheaper – and for some it could be more expensive.
Darlington added: “It has been nearly 18 months since the Leasehold and Freehold Reform Act was passed in the last hours of the Conservative government. To reinvigorate momentum, Matthew Pennycook and Steve Reed must now launch this consultation without delay.”
Since when has it been an infringement of an ‘investor’s’ human rights for them to be compensated if their initial investment doesn’t actually deliver the return they hoped it would.
You must be logged in to like or dislike this comments.
Click to login
Don't have an account? Click here to register
This seems to be the problem with billionaire Investors recently.
All the reward but as soon as the risk comes back to bite they seek compensation/bail out.
See also continued investment in carbon intensive extractions, banks in 2008 , hospitality all the time…
For trust funds and offshore corporates to claim human rights makes the term meaningless.
You must be logged in to like or dislike this comments.
Click to login
Don't have an account? Click here to register