Case Law - Legal Challenges to the Leasehold and Freehold Reform Act 2024
The Leasehold and Freehold Reform Act 2024 marks a significant overhaul of leasehold law in the UK, particularly with respect to lease extensions. The reforms aim to make the process of extending leases fairer for leaseholders, who for years have faced steep costs—especially when their leases fall below the crucial 80-year mark. However, the Act’s provisions, particularly the abolition of marriage value and the capping of ground rent in the calculation of premiums, are raising concerns among freeholders, who argue that these changes could result in significant financial losses.
In this article, we’ll examine two main perspectives on the legal challenges freeholders might bring against the Act: first, why freeholders will struggle to win claims, and second, why freeholders could still succeed in challenging the Act. We will explore key case law, including James v United Kingdom (1986), which has shaped how courts address property rights under human rights law, as well as potential arguments freeholders could use to bolster their claims.
Before I begin, my personal position is that marriage value is unfair. It should never have been created in 1993, as it is based on flawed evidence and logic.
Why Freeholders Could Win: Legal Grounds to Challenge the Act
While freeholders face significant challenges, there are still several legal arguments they could use to mount a strong claim against the government. These arguments focus on the fairness of the compensation offered under the Act, the government’s failure to consult affected parties adequately, and the potential disproportionate burden placed on freeholders compared to leaseholders.
1. Inadequate Compensation
Under Article 1 of Protocol 1, the courts have held that while compensation for interference with property rights does not need to reflect full market value, it must be reasonably related to the value of the property in question. In the case of Lithgow v United Kingdom (1986), the ECtHR emphasised that compensation should be fair and proportional to the deprivation.
Freeholders could argue that the compensation they receive under the 2024 Act, such as a reduction in the deferment rate, is inadequate and not reasonably related to the value of their lost financial interests. If they can demonstrate that the reduction in premiums paid by leaseholders results in a significant financial loss without fair compensation, they may have a stronger claim.
2. Legitimate Expectation
Freeholders could also raise a claim based on the principle of legitimate expectation. This legal doctrine applies when individuals have been led to believe, through established legal practices or government representations, that their rights or financial interests will be preserved. Given that marriage value and ground rent premiums have been part of the leasehold extension process for decades, freeholders may argue that they had a legitimate expectation that these financial benefits would continue.
If freeholders can argue that the 2024 Act unfairly undermines this expectation without adequate compensation or justification, they could have grounds for a legal challenge.
3. Procedural Fairness
Another avenue for freeholders could be to challenge the government on the grounds of procedural fairness. In the case of R (on the application of Moseley) v Haringey LBC (2014), the Supreme Court ruled that public authorities must consult affected parties when making decisions that significantly affect their rights.
Freeholders may argue that they were not given sufficient opportunity to voice their concerns during the legislative process for the 2024 Act. If they can demonstrate that the government failed to consult them adequately or consider their interests, they could argue that the Act is procedurally unfair. The committee stage of the
Anyone who watched the Committee stage leading up to the passage of the act would have seen it unfold as a disorganised and imbalanced process. Top-tier legal experts and highly respected RICS valuers were given the opportunity to voice their concerns, but unfortunately, were allocated minimal time due to severe time constraints. This was largely the result of MPs dedicating extensive time to hearing leaseholder perspectives, creating a clear imbalance in the proceedings and undermining the democratic process. A particularly striking moment was when Barry Gardiner MP reprimanded an expert witness for simply sharing his professional opinion. It raises the question: why were these experts invited to contribute, with weeks of preparation behind them, only to have their insights dismissed, their time cut short, and their views inadequately explored? Matthew Pennycook MP stood out as one of the few who seemed prepared, but he too focused heavily on the leaseholder argument, leaving little time for freeholders to present their case.
4. Disproportionate Burden on Freeholders
The principle of proportionality requires that any interference with property rights must strike a fair balance between the public interest and individual rights. In the case of Hutten-Czapska v Poland (2006), the ECtHR found that rent-control laws placed an unfair burden on landlords, as they restricted the income landlords could derive from their properties without providing adequate compensation.
Freeholders could argue that the abolition of marriage value and the capping of ground rent under the 2024 Act place a disproportionate burden on them compared to the benefits provided to leaseholders. If they can show that the financial losses they suffer are excessive in relation to the public interest benefits, they may have grounds for a successful claim.
5. Expropriation Without Justification
Finally, freeholders could claim that the 2024 Act amounts to an expropriation of property without sufficient justification. In the case of Strand Lobben and Others v Norway (2019), the ECtHR emphasised the need for a clear public interest justification and sufficient procedural safeguards when depriving individuals of their property rights.
Freeholders may argue that the abolition of marriage value and the capping of ground rent effectively deprive them of a significant portion of their financial interests without a strong enough justification. If they
Why Freeholders Will Struggle: Case Law Supporting the Government
Freeholders looking to challenge the Leasehold and Freehold Reform Act 2024 will face significant obstacles based on established case law, particularly in relation to the protection of property rights under Article 1 of Protocol 1 of the European Convention on Human Rights (ECHR). Several key legal principles and court decisions suggest that the government will be able to justify the Act as a legitimate public interest measure, making it difficult for freeholders to succeed in their claims.
1. The Public Interest Justification
One of the primary reasons freeholders will struggle to challenge the Act is the strong public interest justification for the reforms. The government aims to promote fairness in the leasehold system by reducing the financial burden on leaseholders, particularly in relation to lease extensions. This public interest argument was central to the case of James v United Kingdom (1986), in which landlords challenged the Leasehold Reform Act 1967.
In James, the European Court of Human Rights (ECtHR) held that the government’s goal of promoting homeownership and improving security for long-term tenants was a legitimate public interest. The court found that the interference with landlords’ property rights was justified in pursuit of this goal, despite the fact that it resulted in landlords receiving less than market value for their properties.
Similarly, in the case of the 2024 Act, the government could argue that the abolition of marriage value and the capping of ground rent serve a legitimate social purpose by making lease extensions more affordable. This public interest argument is likely to carry significant weight with the courts.
2. Proportionality and Fair Balance
Another key factor working against freeholders is the principle of proportionality. Under human rights law, the government must strike a fair balance between the interests of the individual and the needs of the wider community. In the case of Lithgow v United Kingdom (1986), the ECtHR ruled that compensation for interference with property rights does not necessarily have to reflect full market value, as long as the interference is proportionate and serves a legitimate public interest.
The courts are likely to apply this principle when assessing freeholders’ claims under the 2024 Act. Although freeholders will lose financial benefits, such as marriage value, the interference with their property rights may be considered proportionate in light of the broader goal of making lease extensions fairer for leaseholders.
3. Wide Margin of Appreciation
The doctrine of margin of appreciation gives states considerable discretion in regulating property rights, particularly when pursuing social and economic policies. In James v UK and other cases, the courts have consistently upheld the government’s right to interfere with property rights when pursuing legitimate goals. This wide margin of appreciation is likely to be applied to the 2024 Act, making it difficult for freeholders to argue that the government has overstepped its authority.
4. Other Relevant Case Law
Other key cases, such as Sporrong and Lönnroth v Sweden (1982) and Brosset-Triboulet v France (1999), have also upheld government measures that interfere with property rights as long as they serve a public interest and are proportionate. These cases demonstrate that courts are generally deferential to governments when it comes to housing and property reforms, especially where those reforms aim to address social or economic issues.