R (ARC Funds and Others) v Secretary of State for Housing, Communities and Local Government: High Court Dismisses A1P1 Challenge to Leasehold and Freehold Reform Act 2024 Valuation Amendments
In a judgment of meticulous scholarship and measured authority, the Divisional Court has affirmed the constitutional legitimacy of the Leasehold and Freehold Reform Act 2024 (LFRA 2024), dismissing a concerted challenge mounted by a coalition of institutional landlords against its core provisions on enfranchisement pricing. Delivered on 24 October 2025 by Lord Justice Holgate and Mr Justice Foxton in [2025] EWHC 2751 (Admin)—a comprehensive 164-page analysis—the ruling navigates the delicate interplay between proprietary rights and legislative imperatives, concluding that the Act's amendments impose no "excessive burden" under Article 1 of the First Protocol (A1P1) to the European Convention on Human Rights (ECHR).
The claimants, representing a spectrum of freehold and reversionary interests in residential dwellings, sought declarations of incompatibility, arguing that the reforms—abolishing marriage value in premium calculations, capping ground rents for valuation purposes, and reallocating non-litigation costs—effect an uncompensated deprivation of possessions contrary to the "fair balance" test enshrined in A1P1. The court, however, finds these measures proportionate, justified by the enduring "wasting asset problem" of long leases, and consonant with Parliament's wide margin of appreciation in matters of social and economic policy.
"The claimants, who are owners of freehold and other reversionary interests of dwellings, and to whom we shall refer as 'landlords', ask the court to declare that amendments made by the Leasehold and Freehold Reform Act 2024 ('LFRA 2024') to legislation for determining the sums a landlord will receive when a tenant under a long lease exercises a statutory right to enfranchise are incompatible with Article 1 of the First Protocol ('A1P1') to the European Convention of Human Rights ('ECHR')."
— [2], page 6
This decision, structured across 16 headings for analytical clarity (at [1], page 3), builds upon the foundational precedent of James v United Kingdom (1986) 8 EHRR 123, where the European Court of Human Rights (ECtHR) upheld earlier enfranchisement schemes under A1P1. It traces the legislative lineage from the Leasehold Reform Act 1967 (LRA 1967) to the LFRA 2024, emphasising the reforms' roots in redressing historical inequities in England's leasehold tenure—a system where tenants, having borne maintenance and improvement costs, face reversion of their homes to landlords without recompense (at [5], page 6).
The proceedings, heard over four days in July 2025 with further submissions in August (page 2), featured an eminent array of counsel, including Monica Carss-Frisk KC for the lead claimant and Sir James Eadie KC for the Secretary of State, with the Speaker of the House of Commons intervening to safeguard parliamentary proceedings. Released to the National Archives, the judgment underscores judicial deference to democratic reform while subjecting it to rigorous human rights scrutiny. For leaseholders, it heralds greater accessibility to enfranchisement; for landlords, it mandates adaptation to a recalibrated proprietary landscape.
The Claimants and the Statutory Context
The six groups of claimants embody the diverse interests impugned by the LFRA 2024 (at [32]-[48], pages 13-14): the ARC Time Freehold Income Authorised Fund (via Alpha Real Capital LLP; [AC-2024-LON-002865]), Cadogan Group Limited and Grosvenor Limited ([AC-2024-LON-002875]), Abacus Land 1 (Holdco 1) Limited and others ([AC-2024-LON-002830]), Wallace Partnership Group Limited and others ([AC-2024-LON-002913]), John Lyon's Charity ([AC-2024-LON-002817]), and the Trustees of the Portal Trust ([AC-2024-LON-002904]). Their grievances centre on projected losses totalling £3.7 billion over a decade, as quantified in the Addendum Impact Assessment (at [279]-[283], pages 28-29).
The statutory framework, as delineated at [53]-[77] (pages 10-11), originates in the LRA 1967, which conferred enfranchisement rights on tenants of low-value houses to avert the "unjust" forfeiture of improvements (at [4]-[6], pages 6-7). The 1966 White Paper articulated this rationale:
"It was said to be unjust that at the end of the term ownership of the land and the house should revert to the freehold reversioner, together with any improvements made by the tenant or his predecessors, without the landlord paying anything to the tenant. Irrespective of whether the tenant had constructed the house under a building lease arrangement, he and his successors would have borne the costs of maintaining the property throughout the term, together with the costs of any improvements. The 1966 White Paper stated that such a tenant was morally entitled to the ownership of the building."
— [5], page 6
Subsequent enactments expanded scope: the Housing Act 1974 (HA 1974) incorporated building values and marriage value sharing; the Leasehold Reform, Housing and Urban Development Act 1993 (LRHUDA 1993) introduced flat rights; and the Commonhold and Leasehold Reform Act 2002 (CLRA 2002) mandated 50:50 marriage value division below 80 years' unexpired term (at [8]-[13], pages 7-8). Premiums comprise reversion value, term value, and half marriage value (at [15], page 9):
"(1) 'Reversion value'. This is the market value of the future right to vacant possession at the end of the term. This net present value ('NPV') is arrived at by discounting the current FVPV by a deferment rate for the unexpired period of the term; (2) 'Term value'. This is the market value of the landlord’s right to receive the rent due under the lease (including any contractual increases in rent) for the unexpired term. The NPV of that right is arrived at by applying a capitalisation rate to that rental stream; (3) Marriage value. Taking a house as an example, the marriage value is arrived at by deducting from the current FVPV of the house (a) the value of the landlord’s present interest in the property (i.e. the reversion value and the term value) and (b) the value of the lease (as if there were no enfranchisement rights). The difference is the marriage value, half of which is then included in the enfranchisement price payable to the landlord."
— [15], page 9
The LFRA 2024 refines this edifice, excising marriage value (Sch 4, para 17(3)), capping ground rents at 0.1% of freehold vacant possession value (FVPV) (s 37, Sch 4 para 26(4)), and shifting costs to tenants (ss 38-39).
A1P1 Principles: The Fair Balance Imperative
The court's exposition of A1P1 at [78]-[182] (pages 11-14) adheres to ECtHR jurisprudence, affirming UK courts' interpretive fidelity while according domestic latitude (at [78]-[79], page 11). The provision's structure—peaceful enjoyment, deprivation subject to public interest, and control of use—demands proportionality: legitimate aim, rational connection, necessity, and fair balance (at [80]-[81], page 12; [128]-[134], page 14). James remains authoritative, validating 50% marriage value sharing as non-excessive (at [82]-[94], pages 12-13):
"The fair balance test required by A1P1 was satisfied. The measures did not result in the placing of an excessive burden on the applicant."
— [11], page 8
Compensation need only be "reasonably related" to loss, not market value in full (at [179]-[182], page 14). The wide margin for social reform, general rules over ad hoc lines, and rejection of less intrusive alternatives where simplicity prevails underpin the analysis (at [163]-[170], pages 15-16).
"A1P1 does not guarantee a right to full compensation in all circumstances. Legitimate objective considerations, such as the economic and social interests of the community as a whole, may call for less than full compensation."
— [107], page 13 (citing Papachelas v Greece (2000) 30 EHRR 923)
The Reforms' Evolution and Impact
The judgment chronicles the measures' development at [194]-[278] (pages 18-23), from the Law Commission's 2013 project ([195], page 18) through Consultation Paper No 238 (at [202]-[212], pages 21-22), Valuation Report No 387 ([217]-[232], page 22), and Enfranchisement Report No 392 ([234]-[248], page 22), to the October 2023 Bill and ECHR Memorandum (at [264]-[274], page 24). The Impact Assessment estimates a £3.7 billion wealth transfer (at [279]-[283], pages 28-29), deemed evidentially robust despite challenges (at [284]-[307], pages 28-31). Aims—rectifying imbalances and facilitating enfranchisement—are rationally connected (at [308]-[340], pages 31-34).
1. The Marriage Value Reform: Addressing the Wasting Asset
The abolition of marriage value below 80 years' unexpired term (at [382]-[471], pages 17-19) targets the lease's depreciation, where value plummets from near-100% FVPV to nil, peaking merger uplift at 20-45 years (at [387]-[397], page 18). Historical oscillation—from exclusion in HA 1969 to 50:50 sharing in CLRA 2002—culminates in the LFRA's clean excision (at [398]-[407], page 18).
Claimants contended it ignores premia-embedded risks and demands phasing (at [409]-[442], [443]-[452], pages 18-19). The court demurs: the aim—to mitigate "unearned" reversion windfalls—is legitimate, with no viable milder measure; the burden, retaining term and reversion values, is not excessive (at [453]-[468], page 18).
"The inherently imbalanced and unfair nature of the leasehold system, and the wasting asset problem which it creates, provides a strong justification for excluding marriage value from enfranchisement compensation."
— [428], page 23
Charitable submissions, including John Lyon's £1.37 million annual loss, fail for want of exemption (at [469]-[470], page 19). Compliant (at [471], page 19).
2. The Ground Rent Cap: A Measured Constraint
Deeming ground rents at peppercorn or 0.1% FVPV maximum (at [341]-[381], pages 17-18) counters escalatory rents that inhibit enfranchisement (at [342]-[351], page 17). Consultation evidence supports the threshold as "negligible" (at [352]-[358], page 17).
Landlords urged higher caps; the court affirms rationality and proportionality, with the £1.151 billion impact modest relative to overall value (at [359]-[380], page 18).
"In practical terms, it is sufficient evidential basis for the conclusion given legislative effect in the LFRA 2024 that the Ground Rent Cap should be set at 0.1%. Parliament was entitled to conclude that ground rents of 0.1% of FVPV represent a negligible proportion of the value of the landlord’s reversion."
— [115], page 18
Compliant (at [381], page 18).
3. The Costs Recovery Reform: Reapportioning Procedural Equity
Requiring tenants to bear landlords' reasonable non-litigation costs (at [472]-[502], page 19) aligns enfranchisement with open-market norms, deterring speculation (at [475]-[486], page 19). The £599 million tenant saving justifies the shift (at [87], page 30).
Alternatives like caps were deemed administratively burdensome; balance is preserved (at [487]-[501], page 19).
"The reform would mean that tenants bear the costs of enfranchisement in the same way as they would if selling on the open market."
— [483], page 19
Compliant (at [502], page 19).
Cumulative Effects and Charitable Considerations
No synergistic excess burdens the measures (at [503]-[521], page 19). Charities' non-exclusion withstands scrutiny, prior consultations having balanced impacts (at [522]-[539], pages 20-21; [540]-[557], page 21).
"In those circumstances, the decision not to exempt charities from the removal of marriage value is entitled to a considerable margin of appreciation, and we conclude that there is no sufficient basis for holding that the measure violates A1P1."
— [536], page 20
Conclusion: A Proportionate Advance
The court concludes at [558] (page 21):
"For all these reasons, 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 A1P1. Accordingly, each of the claims is dismissed."
This erudite ruling fortifies the LFRA 2024, affirming Parliament's latitude to modernise leasehold while honouring A1P1's safeguards. Appeals may follow, yet the judgment endures as a benchmark for proprietary reform in the public interest.