High Court rejects freeholder’s human rights challenge to Leasehold and Freehold Reform Act 2024

There were three key provisions which were claimed to breach A1P1 rights, as follows:

1. The cap on ground rent for the purposes of premium valuation for lease extensions and freehold purchases to the lower of the existing lease ground rent provisions or 0.1% of the Freehold Vacant Possession Value (FVPV);
2. The removal of marriage value in the premium payable for leases below 80 years;
3. The removal of leaseholder’s obligations to pay any of the landlord’s costs. Therefore, generally each party to pay their own costs. 

The claimants were as follows:

• ARC Funds and others
• Cadogan Group Limited, Grosvenor Limited and others
• Abacus Land and others 
• Wallace Partnership Group Limited and others
• John Lyon’s Charity
• Trustees of the Portal Trust 

The Court accepted that bringing in these reforms would impact A1P1 rights. However, the statutory objectives behind LAFRA and their connection to leaseholder A1P1 rights justifies these provisions. 

The key intention behind LAFRA was to address the “inherent unfairness and imbalance in the nature of leasehold property”. This particularly relates to the diminishing nature of leasehold assets, the lack of security and control, and making the lease extension and enfranchisement processes cheaper and easier “to enable tenants to deal with those inherently unfair features of leasehold as a form of property interest”.

• There was evidence to support that ground rents above 0.1% of the FVPV reduced the value of a leasehold property and could potentially make it less marketable. Therefore, a 0.1% cap was necessary to meet the objects of LAFRA.
• Similarly, the Court determined that the removal of marriage value from the premium calculation was justified to redress the imbalance between parties and the inherent unfairness in the leasehold system. The Court rejected the argument that removing marriage value would result in the landlord receiving compensation which would not reasonably relate to market value.
• The costs recovery reforms were necessary to remedy the wasting asset problem and unfairness and imbalance in the relationship between the parties.
• The cumulative effect of these provisions was rejected. 

John Lyons Charity asked the court to consider raising an exception for charity landlords. Many charity landlords rely on these types of premiums to fund their charitable endeavours. However, this was rejected by the Court as there was no requirement by Parliament to differentiate between different types of landlords. 

Portal Trust raised a challenge that those tenants who are not in occupation but lease and sublet a significant number of residential properties should be excluded from these provisions. This was dismissed by the Court. The provisions are to apply to all residential long leases. Any differential treatment would undermine the objectives behind LAFRA.

The claimants have until the 14th November to request permission to appeal.

The Government will likely await the outcome of any further appeals. Although given the Claimants challenges were wholly rejected and the decision is comprehensive and clear permission to appeal is certainly not guaranteed. 

Although the decision does provide some clarity, if deferment rates are reduced this could lead to increased premiums which could potentially offset some of the saving by the removal of marriage value and the ground rent cap. Therefore, we will need to wait and see if this decision is appealed and if there is further valuation reform in the pipeline following consultation expected soon.