Leasehold Reform: Freeholders Lose Court Challenge

The government has defeated a group of freeholders objecting to leasehold reform that could severely impact their finances.

The group included some of the country's biggest private home rental investors and charities which between them have portfolios of over 200,000 leasehold flats and houses making up around a quarter of the 950,000 leasehold homes in England and Wales.

The freeholders, who included the Duke of Westminster and the Earl of Cadogan, had protested in the High Court that the Leasehold and Freehold Reform Act 2024 infringed their human rights and their right to exploit their private property interests in the homes of leaseholders because the new law struck an 'unfair balance between them and the leaseholders'.

Loss of income

The judicial review was focused on three measures, which the freeholders argued affected them the most:

• Setting a ground rent cap to make leasehold homes more affordable for renters
• Abolishing marriage values, which is the increase in value of a property when the lease is extended, making the home more valuable
• Overhauling the costs recovery mechanism, which allows freeholders to recover maintenance, insurance and other costs through a service charge

The freeholders claimed the loss of income arising from the reform of leasehold laws impacted their human rights.

Although Lord Justice Holgate and Mr Justice Foxton, sitting in the Divisional Court, agreed the new regulations would have a 'detrimental' effect on the finances of the freeholders, they rejected their claims, stating the new laws were balanced and robust.

Freeholder claims dismissed

Their 170-page judgment said: "Having concluded that each of the three reforms represented a fair and proportionate means of addressing different aspects of the unfairness inherent in the leasehold model of property ownership, and that none had the effect that the particular element of the total amount payable to a landlord on enfranchisement ceased to be reasonably related to market value, we are satisfied that the claimants are no better placed by asking the court to consider the cumulative effects of the three measures in human rights terms than in considering them in isolation.

"We conclude that the measures under challenge, the Ground Rent Cap, the Marriage Value Reform and the Costs Recovery Reform, whether considered individually or cumulatively, including their application to charities, are compatible with human rights. Accordingly, each of the claims is dismissed."

Freeholders likely to appeal

The government has delayed implementing the clauses of the Leasehold and Freehold Reform Act 2024, pending the outcome of the judicial review.

However, the ruling is unlikely to signal the end of the dispute between the freeholders and the government, as the freeholders have indicated they may seek leave to appeal and even take the case to the European Court of Human Rights.

The government has also waited for the case result to launch a consultation on how to calculate the cost of leasehold extensions.