The government has successfully defended a legal challenge brought by a consortium of major freeholders over the Leasehold and Freehold Reform Act (LAFRA), marking a significant moment in the ongoing reform of leasehold law.
The judicial review was brought by several prominent freeholders, who had argued some unimplemented sections of LAFRA, including the abolition of marriage value, the capping of ground rent, and the liability for costs, infringed their human rights.
Linz Darlington, managing director of lease extension specialists Homehold, explained:
“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 has decided that this should be removed, because the freeholders are fairly compensated for their loss by other parts of the calculation.”
Ground rent, he added, ‘can rise at an alarming rate’.
“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.”
The court also ruled freeholders must pay their own legal and valuation fees – currently payed by the leaseholder.
The outcome has been welcomed by the Association of Leasehold Enfranchisement Practitioners (ALEP), who said the ruling will allow the remaining provisions of LAFRA to be implemented.
Mark Chick, ALEP director and senior partner at Bishop & Sewell LLP, commented:
“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 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legality of these provisions had stalled further progress and the government had indicated that the draft bill would not be published until the case was resolved. “
Although the legal victory has been hailed as a major milestone, the claimants are expected to appeal. ‘While this ruling is an important next step in the leasehold reform journey, it is not the end of the battle’, said Darlington.
“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.”
And according to Chick, the lengthy appeals process could result in further significant delays for leaseholders. While the victory allows the government to implement the remaining provisions of LAFRA, he explained, as the freeholders’ claim was brought under human rights law they are likely to appeal the first-instance decision.
‘There is the prospect of a UK appeal and then possibly an onward appeal to the European Court of Human Rights’, he said.
“Strategically, the government will be considering options carefully and of course, we wait to hear from the freeholders about what they will do.”
With 18 months already passed since LAFRA was passed by the Conservative government, Darlington is urging Labour to act quickly. He added:
“To reinvigorate momentum, Matthew Pennycook and Steve Reed must now launch this consultation without delay.”
