UK Government Sued by Charities and Major Property Owners Over Leasehold and Freehold Reform Act 2024
Updated 31 October 2024
Starting in early September 2024 the UK Government is embroiled in several legal challenges related to the recently enacted Leasehold and Freehold Reform Act 2024. Despite the fact that the provisions of the Act have yet to come into force, multiple parties—including charities and property owners—have launched lawsuits, alleging significant financial harm as a result of the proposed changes.
One of the most prominent challenges comes from John Lyon’s Charity, a children's charity that claims the new legislation will divert significant income away from their operations. According to John Lyon’s, the exclusion of "marriage value" from the calculation of enfranchisement under the Act could result in a £1.4 million annual loss for the charity. These funds, which currently support community projects across nine London boroughs, will instead benefit affluent property owners, particularly in high-value areas such as St John’s Wood, where house prices average £2.8 million.
Represented by solicitor Mark Stephens CBE and Edward Fitzgerald KC, John Lyon’s Charity is seeking a High Court declaration that the Act is incompatible with the Human Rights Act 1998, specifically the right to property. The lawsuit highlights the broader implications of the Act, which aims to make it easier and cheaper for leaseholders to purchase their freeholds by removing the marriage value calculation—a mechanism that previously ensured freeholders could benefit from the uplift in property value when a leaseholder extended or purchased a freehold.
In addition to John Lyon’s, Annington Property Limited, a large freeholder, has also filed legal proceedings, claiming that certain provisions of the Act could allow leaseholders to acquire freehold and intermediate leasehold interests at values far below market rate. Annington, which holds significant leasehold interests with the Ministry of Defence, seeks clarification from the courts to prevent potential financial losses under the new legislation.
The Church of England has also voiced concerns, with Rt Rev Prof David Walker stating in the House of Lords that the Act "robs the poor to pay the rich" by redirecting funds away from charitable causes and into the hands of wealthy leaseholders.
Judicial Review
On 30th October 2024 in the Court of Appeal Mr Justice Chamberlian's judgement was delivered. It would appear that the Leasehold and Freehold Reform Act 2024 will likely be going to judicial review. The challenges put forward in the cases above will now proceed to the permission hearing, here the court will decide whether the claims are sufficiently arguable to warrant a full judicial review.
Let's delve deeper into the implications of a declaration of incompatibility, the subsequent remedial orders, and how these can be addressed without entirely discarding the Act.
Understanding Declaration of Incompatibility
Under the Human Rights Act 1998 (HRA 1998), when a court finds that a piece of primary legislation is incompatible with the rights protected by the ECHR, it issues a declaration of incompatibility. It's important to note the following about such declarations:
- Non-Binding Nature: A declaration of incompatibility does not invalidate the offending legislation. Instead, it serves as a formal statement that the law is not compatible with human rights standards.
- Parliamentary Responsibility: Following a declaration, it is entirely up to Parliament to decide whether to amend the legislation to rectify the incompatibility. The courts cannot compel Parliament to act; they can only highlight the issue.
- No Automatic Remedies: Unlike other judicial remedies (e.g., injunctions, damages), a declaration does not provide a direct remedy to the claimant, such as compensation.
Remedial Orders: Scope and Limitations
When a declaration of incompatibility is made, it "triggers a power to make a remedial order removing the incompatibility." However, the scope and mechanism of these remedial orders require careful consideration:
- Parliamentary Action Needed: The actual removal of incompatibility relies on Parliament passing new legislation or amending existing provisions. The courts do not have the authority to unilaterally alter primary legislation.
- Potential Legislative Amendments:
- Targeted Amendments: Parliament can choose to amend only the specific provisions found incompatible, thereby preserving the rest of the Act.
- Comprehensive Overhaul: Alternatively, Parliament might opt for a more comprehensive revision of the Act to ensure overall compliance with human rights standards.
- Judicial Influence Limited: While courts can recommend that certain changes be made, they cannot dictate the form or extent of legislative amendments. The process remains firmly within the legislative domain.
Addressing Incompatibility Without Discarding the Act
Given that a declaration of incompatibility does not nullify the Act, and remedial orders require legislative action, here's how incompatibility can be addressed without "binning" the entire Leasehold and Freehold Reform Act 2024:
Targeted Legislative Amendments:
- Identify Specific Provisions: Parliament can focus on amending only those sections of the Act that were found to be incompatible, ensuring that the rest of the Act remains intact and functional.
- Introduce Safeguards: Amendments can include provisions that better protect property rights or provide adequate compensation, thereby aligning the Act with A1P1 requirements.
Consultative Process:
- Stakeholder Engagement: Parliament may engage with stakeholders, including leaseholders, freeholders, and legal experts, to draft amendments that address the identified incompatibilities while maintaining the Act's overall objectives.
- Impact Assessments: Conducting thorough assessments to understand the implications of proposed changes can help in crafting effective amendments without unintended consequences.
Judicial and Legislative Collaboration:
- Feedback Loop: Courts issuing declarations of incompatibility can inform Parliament about the areas needing attention, facilitating a responsive and informed legislative process.
- Timely Revisions: Prompt legislative action in response to declarations can prevent prolonged periods of incompatibility and reduce ongoing harm to affected parties.
Amendment Through Secondary Legislation:
- Regulatory Adjustments: Some incompatibilities might be addressed through secondary legislation or regulations, allowing for more flexible and timely adjustments without the need for comprehensive primary legislation changes.
The judge's explanation that a declaration of incompatibility would lead to a remedial order rather than damages underscores the procedural and practical separation between judicial findings and legislative action. While this may raise concerns about the effectiveness and timeliness of remedies, it also delineates the distinct roles of the judiciary and the legislature in upholding human rights standards.
To address the incompatibility without discarding the Leasehold and Freehold Reform Act 2024, Parliament can undertake targeted amendments, engage in consultative processes, and leverage secondary legislation where appropriate. This approach allows for rectifying specific human rights concerns while preserving the broader objectives of the Act.
Could Legal Challenges Delay the Implementation of the Act?
These legal challenges may delay the implementation of the Leasehold and Freehold Reform Act 2024. As the lawsuits proceed, there could be calls for amendments, greater clarity, and a reassessment of the fairness of the Act. The UK Government will need to address concerns regarding the financial impact on charities and freeholders, as well as the broader implications for property law. These legal hurdles could result in significant delays, as the government may be forced to adjust the Act to ensure it is legally sound and equitable.
Furthermore, the UK Government will be deeply concerned about the potential financial implications if it loses these cases. If the courts find the Act to be incompatible with the Human Rights Act or rule in favor of the freeholders, the government could face enormous compensation claims. This could place an additional burden on UK taxpayers, who may be asked to foot the bill for leaseholder benefits. Given the state of the UK's public finances, this is a growing concern.
The UK is already grappling with a serious fiscal crisis. The country is now spending more on debt interest payments than on education, with interest costs rising at an alarming rate of over £5,000 per day on top of the already staggering payments. Should the government lose these legal battles, the damage to the UK Treasury could be enormous, further straining the public purse. Many are asking whether it is fair for non-leaseholder taxpayers to bear the cost of compensating freeholders, especially when the government’s resources are stretched so thin.
Public Reactions to the Controversy
The legal disputes have stirred considerable debate. Some argue that the Act is a necessary step to modernise the outdated leasehold system, benefiting ordinary homeowners who are often locked into expensive and complex leasehold arrangements. Others, however, emphasise that the Act disproportionately benefits wealthy London property owners and may cause financial strain on charitable organisations that rely on property income.
One commenter noted that “most leaseholders are not wealthy... and don't own property in expensive parts of London.” They argue that hard cases make bad law, and this is a prime example. Others have expressed frustration with the Church's involvement, pointing out its historical wealth and questioning its moral standing in this matter.
Meanwhile, legal experts suggest that the complexity of the Act, combined with its significant financial impact, will likely lead to more legal challenges from other stakeholders as the law moves closer to implementation.
What’s Next for the Leasehold Reform?
As the UK Government pushes forward with the Leasehold and Freehold Reform Act 2024, the legal landscape is becoming increasingly contentious. With charities, prominent freeholders, and legal experts all weighing in, the path to implementation may be longer and more complicated than initially anticipated. While the Act promises to improve home ownership opportunities for leaseholders, its financial implications for charities, freeholders, and taxpayers remain a point of heated debate and legal scrutiny. The potential delays and financial fallout could have far-reaching consequences for the UK government and the public at large.