“Protection of property Article 1 Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law. The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.”
“institutions (such as pension funds) have become involved in the residential ground rent market over the last 20 years, either through lending against a residential portfolio owned by a freeholder or directly investing and becoming the freeholder themselves. Investors put a proportion of their assets in very secure, long-dated, inflation-linked income streams which will, over that long term give them sufficient return to meet their financial obligations elsewhere.”
“Two circumstances make reform a matter of urgency. First, most people buy their house on mortgage and for them the leasehold system works particularly harshly. A purchaser on mortgage may pay virtually the freehold price for a lease with a good many years to run but as he reaches the end of his mortgage term he will feel a sharpening sense of injustice. He will realise that after he has discharged the mortgage he will have an interest far less valuable than it was when he bought it, and difficult to sell because a subsequent purchaser may not be able to get a mortgage.”
“This rationale reflected a shift away from leasehold as a form of tenure generally. It represented a feeling that the wasting nature of leaseholds, and leaseholders’ general lack of control, rendered leasehold unfit for purpose. This policy direction was certainly contributed to by the anticipation of the invention of commonhold as a new form of ownership, but the anti-leasehold feeling ran somewhat more widely than that.”
“40. The Court agrees with the applicants that a deprivation of property effected for no reason other than to confer a private benefit on a private party cannot be 'in the public interest'. Nonetheless, the compulsory transfer of property from one individual to another may, depending upon the circumstances, constitute a legitimate means for promoting the public interest. In this connection, even where the texts in force employ expressions like 'for the public use', no common principle can be identified in the constitutions, legislation and case law of the Contracting States that would warrant understanding the notion of public interest as outlawing compulsory transfer between private parties. The same may be said of certain other democratic countries; thus, the applicants and the Government cited in argument a judgment of the Supreme Court of the United States of America, which concerned State legislation in Hawaii compulsorily transferring title in real property from lessors to lessees in order to reduce the concentration of land ownership. 41. Neither can it be read into the English expression 'in the public interest' that the transferred property should be put into use for the general public or that the community generally, or even a substantial proportion of it, should directly benefit from the taking. The taking of property in pursuance of a policy calculated to enhance social justice within the community can properly be described as being 'in the public interest'. In particular, the fairness of a system of law governing the contractual or property rights of private parties is a matter of public concern and therefore legislative measures intended to bring about such fairness are capable of being 'in the public interest', even if they involve the compulsory transfer of property from one individual to another.”
“… the notion of 'public interest' is necessarily extensive. In particular, as the Commission noted, the decision to enact laws expropriating property will commonly involve consideration of political, economic and social issues on which opinions within a democratic society may reasonably differ widely. The Court, finding it natural that the margin of appreciation available to the legislature in implementing social and economic policies should be a wide one, will respect the legislature's judgment as to what is 'in the public interest' unless that judgment be manifestly without reasonable foundation.”
“47. The aim of the 1967 Act, as spelt out in the 1966 White Paper, was to right the injustice which was felt to be caused to occupying tenants by the operation of the long leasehold system of tenure. The Act was designed to reform the existing law, said to be 'inequitable to the leaseholder', and to give effect to what was described as the occupying tenant's 'moral entitlement' to ownership of the house. Eliminating what are judged to be social injustices is an example of the functions of a democratic legislature. More especially, modern societies consider housing of the population to be a prime social need, the regulation of which cannot entirely be left to the play of market forces. The margin of appreciation is wide enough to cover legislation aimed at securing greater social justice in the sphere of people's homes, even where such legislation interferes with existing contractual relations between private parties and confers no direct benefit on the State or the community at large. In principle, therefore, the aim pursued by the leasehold reform legislation is a legitimate one.”
“In a building lease the original tenant will have built the house, in a premium lease he will have paid an initial capital sum which typically took account of the building cost, and in both kinds of lease the tenant will have been responsible for all running repairs. This means that the long-leasehold tenant and his predecessors will over the years have invested a considerable amount of money in the house which is their home, whereas the landlord will normally have made no contribution towards its maintenance subsequent to the granting of the original lease.”
“In order to implement such policies, the legislature must have a wide margin of appreciation both with regard to the existence of a problem of public concern warranting measures of control and as to the choice of the detailed rules for the implementation of such measures.”
“The notion of “public” or “general” interest is necessarily extensive. In particular, spheres such as housing of the population, which modern societies consider a prime social need and which plays a central role in the welfare and economic policies of contracting states, may often call for some form of regulation by the state. In that sphere decisions as to whether, and if so when, it may fully be left to the play of free market forces or whether it should be subject to state control, as well as the choice of measures for securing the housing needs of the community and of the timing for their implementation, necessarily involve consideration of complex social, economic and political issues. Finding it natural that the margin of appreciation available to the legislature in implementing social and economic policies should be a wide one, the Court has on many occasions declared that it will respect the legislature’s judgment as to what is in the “public” or “general” interest unless that judgment is manifestly without reasonable foundation. …”
“Savills reports that in the long run, this [freehold vacant possession values for dwellings] is approximately 1% higher than a standard long lease valuation.”
“(1) whether the objective of the measure is sufficiently important to justify the limitation of a protected right, (2) whether the measure is rationally connected to the objective, (3) whether a less intrusive measure could have been used without unacceptably compromising the achievement of the objective, and (4) whether, balancing the severity of the measure’s effects on the rights of the persons to whom it applies against the importance of the objective, to the extent that the measure will contribute to its achievement, the former outweighs the latter.”
“In essence, the question at step four is whether the impact of the rights infringement is disproportionate to the likely benefit of the impugned measure.”
“As in relation to the interpretation of a statute the identification of a legitimate aim also involves reference to Parliament’s purpose, but in this case assessed at a higher level of generality from a viewpoint external to the statute itself and the specific meaning to be given to it.”
“In approaching this issue, as noted in R v Johnstone[2003] 1 WLR 1736 , 1750, para.51, courts should have in mind that theirs is a reviewing role. Parliament is charged with the primary responsibility for deciding whether the means chosen to deal with a social problem are both necessary and appropriate. Assessment of the advantages and disadvantages of the various legislative alternatives is primarily a matter for Parliament. The possible existence of alternative solutions does not in itself render the contested legislation unjustified: see the Rent Act case of Mellacher v Austria(1989) 12 EHRR 391 , 411, para 53. The court will reach a different conclusion from the legislature only when it is apparent that the legislature has attached insufficient importance to a person's Convention right. The readiness of a court to depart from the views of the legislature depends upon the circumstances, one of which is the subject matter of the legislation. The more the legislation concerns matters of broad social policy, the less ready will be a court to intervene.”
“At the domestic level, the courts also recognise that, in certain circumstances, and to a certain extent, other public authorities are better placed to determine how those interests should be balanced. Although the courts must decide whether, in their judgment, the requirement of proportionality is satisfied, there is at the same time nothing in the Convention, or in the domestic legislation giving effect to Convention rights, which requires the courts to substitute their own views for those of other public authorities on all matters of policy, judgment and discretion. As Lord Bingham of Cornhill observed in Brown v Stott[2003] 1 AC 681 , 703: “Judicial recognition and assertion of the human rights defined in the Convention is not a substitute for the processes of democratic government but a complement to them. While a national court does not accord the margin of appreciation recognised by the European court as a supra-national court, it will give weight to the decisions of a representative legislature and a democratic government within the discretionary area of judgment accorded to those bodies.””
“If the legitimate purpose is broad, a wider range of interfering measures will be proportionate to achieving it. If the aim pursued is to promote a weighty public interest, it will be easier for the state to show that the interfering measure strikes a fair balance.”
“Moreover, landlords cannot assume that the existing valuation methodology, or existing legal regime, will continue indefinitely. The introduction of the first enfranchisement legislation in 1967 (which provided a favourable basis of valuation to leaseholders) would have significantly reduced the value of many landlords’ assets. Similarly, when the enfranchisement regime was extended to flats in 1993 and further expanded in 2002, that had significant implications for landlords. The law is reformed, and that has implications for very many people. Landlords cannot expect that the current valuation methodology will always remain the same. When investing, it is standard practice to consider the risk, and make allowances for risk. For example: (1) there is a risk of higher taxes being levied on property owners who are not owner-occupiers; and (2) when landlords have invested in ground rents, particularly onerous ground rents, they should have considered the risk of future regulatory intervention which could reduce their contractual entitlement to the ground rent.”
“Such a system may have been possible, and indeed a proposal to this effect was made during the debates on the draft legislation. However, Parliament chose instead to lay down broad and general categories within which the right of enfranchisement was to arise. The reason for this choice, according to the Government, was to avoid the uncertainty, litigation, expense and delay that would inevitably be caused for both tenants and landlords under a scheme of individual examination of each of many thousands of cases. Expropriation legislation of wide sweep, in particular if it implements a programme of social and economic reform, is hardly capable of doing entire justice in the diverse circumstances of the very large number of different individuals concerned.”
“The view taken by Parliament as to the tenant's 'moral entitlement' to ownership of the house, which the Court has found to be within the State's margin of appreciation, is one that applies equally to the applicants' properties in Belgravia. An inevitable consequence of the legislation giving effect to that view is that any tenant who sells the unencumbered freehold of the property (comprising house and land) after enfranchising is bound to make an apparent gain, since the price of enfranchisement, at least on the 1967 basis of valuation, did not include the house and the tenant has benefited from the so-called merger value. In addition, the broad sweep and scale of the redistribution of interests achieved by the reform mean that some anomalies, such as the making of 'windfall profits' by tenants who purchased end-of-term leases at the right time, are unavoidable. Parliament decided that landlords affected by the legislation should be deprived of the enrichment, considered unjust, that would otherwise come to them on reversion of the property, at the risk of a number of 'undeserving' tenants being able to make 'windfall profits'. That was a policy decision by Parliament, which the Court cannot find to be so unreasonable as to be outside the State's margin of appreciation. Neither does the operation of the legislation in practice, notably as illustrated by the 80 transactions concerning the applicants, show the scale of anomalies to be such as to render the legislation unacceptable under Article 1. Furthermore, in all the specific transactions complained of, even those where 'windfall profits' were made by tenants in onward sales, the applicants received the prescribed compensation for what Parliament considered to be their entitlement in equity as landlords. Any hardship as a result of the making of a 'windfall profit' was suffered not by the applicants, whose loss and compensation were unaffected, but rather by the predecessor(s) in title of the enfranchising tenant.”
“The availability of alternative solutions does not in itself render the leasehold reform legislation unjustified; it constitutes one factor, along with others, relevant for determining whether the means chosen could be regarded as reasonable and suited to achieving the legitimate aim being pursued, having regard to the need to strike a 'fair balance'. Provided the legislature remained within these bounds, it is not for the Court to say whether the legislation represented the best solution for dealing with the problem or whether the legislative discretion should have been exercised in another way.”
“The rationale of that approach is that where there is an ab ante challenge to a legislative provision (that is to say, a challenge to the provision in advance of its application to any particular facts), the striking down of the provision is only justiciable if the court is satisfied that it is incapable of being applied in a way which is compatible with the Convention rights, whatever the facts may be. If the legislation is capable of being applied compatibly with the Convention, then it will survive an ab ante challenge.”
“Article 14 Prohibition of discrimination The enjoyment of the rights and freedoms set forth in this Convention shall be secured without discrimination on any ground such as sex, race, colour, language, religion, political or other opinion, national or social origin, association with a national minority, property, birth or other status”
“(1) The court has established in its case law that only differences in treatment based on an identifiable characteristic, or 'status', are capable of amounting to discrimination within the meaning of article 14" (2) Moreover, in order for an issue to arise under article 14 there must be a difference in the treatment of persons in analogous, or relevantly similar, situations. (3) Such a difference of treatment is discriminatory if it has no objective and reasonable justification; in other words, if it does not pursue a legitimate aim or if there is not a reasonable relationship of proportionality between the means employed and the aim sought to be realised. (4) The contracting state enjoys a margin of appreciation in assessing whether and to what extent differences in otherwise similar situations justify a different treatment. The scope of this margin will vary according to the circumstances, the subject matter and the background.”
“For the purpose of A1P1 this process takes concrete form as follows. The paradigm case of a reasonable relationship between compensation and the property’s value arises, no doubt, where full market value is paid. In that case the relationship between the two is one of identity. That or something not far off is likely to apply in what may be called a “micro-economic” setting, where for example a single property is taken to achieve a specific and limited local objective. In such a case proportionality is likely to require market value or something close to it, and the margin of appreciation may offer little or no scope to justify the deprivation of property for less. But there will be other cases in which the objective of the deprivation is much broader: perhaps a matter of high politics. In such instances the policy aim of the measure in question may be diminished or undermined or even contradicted by a requirement of full market value. The measure’s intention may be to re-distribute wealth, or to achieve a necessary social reform, goals which are or may be perceived to be inconsistent with full compensation payable to the previous owner. In these cases, the margin of appreciation allows a flexible approach to the right protected by A1P1 which may give place to those aspects of the policy which override the case for payment of full value.”
“In all other respects, the theme which runs through the authorities is that one assumes that the hypothetical vendor and purchaser did whatever reasonable people buying and selling such property would be likely to have done in real life. The hypothetical vendor is an anonymous but reasonable vendor, who goes about the sale as a prudent man of business, negotiating seriously without giving the impression of being either over-anxious or unduly reluctant. The hypothetical buyer is slightly less anonymous. He too is assumed to have behaved reasonably, making proper inquiries about the property and not appearing too eager to buy. But he also reflects reality in that he embodies whatever was actually the demand for that property at the relevant time. It cannot be too strongly emphasised that, although the sale is hypothetical, there is nothing hypothetical about the open market in which it is supposed to have taken place. The concept of the open market involves assuming that the whole world was free to bid, and then forming a view about what in those circumstances would in real life have been the best price reasonably obtainable.”
“We will consider further reforms through the consultation to improve consumer choice and fairness in leasehold, and whether and how to reinvigorate Commonhold. We will also work with the Law Commission to identify opportunities to incorporate additional leasehold reforms as part of their 13th Programme of Law Reform, and will take account of the work of the All-Party Parliamentary Group on Leasehold and Commonhold.”
“Leasehold should be just that, a tool for making multiple ownership more straightforward. It should not be a means of extracting ever-more cash from the pockets of already over-stretched housebuyers. Yet in the hands of unscrupulous freeholders, that is exactly what it has become.”
“So we refer to ‘buying’ or ‘owning’ a house or flat. But when we buy on a leasehold basis, we are in fact buying a house or flat for a certain number of years (after which the assumption is that the property reverts to the landlord). A leasehold interest is therefore often referred to as a wasting asset: its value tends to reduce over time, as its length (‘the unexpired term’) reduces.”
“ordinary home-owners (ranging from those with limited means through to very wealthy owners); non-resident owners (such as buy-to-let landlords, those with a second home; those who have invested in property) and some speculative investors and developers who purchase flats with a view to exercising enfranchisement rights and profiting from selling on the enhanced interest”; iv) At [1.64], the Law Commission said of one of the objects in the ToR that “Government’s desire to reform the enfranchisement regime to provide a better deal for leaseholders as consumers is, of course, directed at individual home owners rather than investors”
“A key factor affecting the compatibility of the scheme with A1P1 will be the aims and objectives of the eventual scheme. For example, if the primary aim of the scheme is to remedy perceived injustice faced by leaseholders, that will have a bearing on the scope of the reforms (including the identity of those who are to benefit from the reforms) and will feed into the assessment of proportionality, including the degree of scrutiny (or conversely, deference) the courts will apply to the scheme. If the Government’s aim is to reform the leasehold enfranchisement system in order to make enfranchisement more simple, quick and cost-effective, that will change the scope of the scheme and the proportionality assessment accordingly. If the Government’s aims are more ambitious – for example, deliberate redistribution of wealth from one group (landlords) to another (leaseholders) or even ending the system of leasehold altogether – that will also feed into the nature and scope of the scheme and the assessment of where the fair balance is to be struck in terms of compensation.”
“1.9 So we refer to “buying” or “owning” a house or a flat. But when we buy on a leasehold basis, we are in fact buying a house or flat for a certain number of years (after which the assumption is that the property reverts to the landlord). A leasehold interest is therefore often referred to as a wasting asset: whilst it may increase in value in line with property prices, its value also tends to reduce over time as its length (the “unexpired term”) reduces. There comes a point when the remaining length of the lease makes it unsaleable, because purchasers cannot obtain a mortgage (since lenders will not provide a mortgage for the purchase of a short lease). 1.10 In addition, leasehold owners often do not have the same control over their home as a freehold owner. For example, they may not be able to make alterations to their home, or choose which type of flooring to have, without obtaining the permission of their landlord. The balance of power between leasehold owners and their landlord is governed by the terms of the lease and by legislation.”
“Some landlords have suggested that the strong views that we have heard from leaseholders are not representative of all leaseholders, and that reform should not be based on the unrepresentative view of an aggrieved minority.”
“each scheme results in a premium that can be described as the ‘market value’ of the landlord’s asset, by reference to that assumed market. It is what the landlord can expect to receive for his or her interest in that market.”
“If Government wishes to reduce premiums to a level that cannot be justified under A1P1 if it applied to all leaseholders, then it would be necessary for Government to create such a distinction. … If Government does decide to differentiate between different categories of leaseholder, there are various ways in which the distinction could be framed … The best way to do that depends on Government’s objective in giving owner-occupiers a more favourable basis of valuation.”
“As we go on to explain below, these inherent features of leasehold ownership are the root cause of many criticisms that have been levelled at it as a mechanism to deliver home ownership. Conversely, these features of leasehold ownership are the very reason that it is an attractive investment opportunity, and a valuable asset, for landlords. (1) Since a lease is a time-limited interest, there will come a point when the leaseholder needs to extend the lease or buy the freehold in order to retain the property. The leaseholder has to pay the landlord in order to do so. In addition, throughout the term of the lease, the leaseholder will usually have to pay ground rent to the landlord, which provides a source of income for landlords. (2) The landlord’s control over the property provides a further source of income. For example: (a) landlords can charge leaseholders a fee for certain actions, such as giving consent to alterations to a flat, or for registering a change of ownership when a leaseholder sells his or her flat; and (b) landlords can receive income indirectly through the service charge that leaseholders are required to pay for the costs of maintaining their block or estate. For example, the premium for insuring a block will be paid by the leaseholders, but when arranging the insurance policy the landlord might receive a commission from the insurance company. Similarly, the landlord might arrange for the services at a block (such as for management, for cleaning, or for repair work) to be undertaken by an associated company.”
“Our Terms of Reference are not neutral. They require us to make recommendations that would alter the law in favour of leaseholders. They indicate a policy conclusion reached by Government that the leasehold system in its current form is not a satisfactory way of owning homes.”
“All of the criticisms summarised above derive, at least to some extent, from those inherent limitations – namely that the asset is time-limited, and that control is shared with the landlord.”
“Our starting point in this [commonhold] project is that it is not necessary for leasehold to be used as the mechanism for delivering home ownership. Rather, commonhold can be used instead, and we would go as far as to say that it should be used in preference to leasehold, because it overcomes the inherent limitations of leasehold ownership set out above.”
“Leaseholders buy a time-limited interest, frequently at a value close to – or even equivalent to – the freehold value. As the term of a long lease diminishes, its saleability and its usefulness as mortgage security also diminishes, particularly once there are fewer than 80 years remaining on the lease. Leaseholders – or their successors in title – often find themselves compelled to make an enfranchisement claim either: (1) because they wish to sell their home and a purchaser can only be found (or will only be able to obtain a mortgage) if the length of the lease is extended; or (2) because they know that the cost of doing so in the future will likely be higher.”
“However, in practice we do not think that implementing such a distinction – in respect of which leaseholders have rights and which do not – is workable or desirable. It would be difficult to distinguish accurately between commercial investors who should not benefit from enfranchisement rights, and those who should, and attempting to restrict the former may well disenfranchise the latter. Consultees raised problems with both of the options we suggested in the Consultation Paper, from the avoidance mechanisms which might arise through a reduced definition of a residential unit, to the difficulties a reintroduced residence test may cause for various types of leaseholders (for example, those required to hold their lease through a company).”
“We recommend that the answer to the question of whether leaseholders should continue to be required to contribute to their landlords’ non-litigation costs should depend on which option is adopted for the valuation of the premium payable. If Government adopts a broadly market-value based approach, then we recommend that leaseholders should (in most cases) no longer be required to contribute to their landlord’s non-litigation costs. However, if Government adopts a valuation methodology that is not broadly market-value based, we recommend that leaseholders should continue to be required to contribute to their landlord’s non-litigation costs, but that the amount paid should be set by a fixed costs regime. These recommendations will make the exercise of enfranchisement rights more cost-effective for leaseholders”
“Our Terms of Reference refer generally to providing ‘a better deal for leaseholders as consumers’. Our recommendations for reform are therefore intended to make the law work better for all leaseholders.”
“The overarching aim, which is consistent with previous Government messaging on the purpose of reforming enfranchisement and states that whilst freeholder interests are taken into account, the Government is addressing historic imbalance to ensure fairness for leaseholders.”
“The Law Commission have now completed this work and their findings are clear. Under the current system, too many leaseholders find the process for extending their lease or buying their freehold prohibitively expensive, too complex and lacking transparency. I am addressing this, addressing historic imbalance to ensure fairness for leaseholders, whilst taking account of the legitimate rights of freeholders. I will continue to ensure we meet this objective as we bring forward reforms.”
“Government’s aims in this area are to address the historic imbalance as between the rights of freeholders and of leaseholders, ensuring fairness for leaseholders, whilst taking into account the legitimate rights of freeholders ... ”
“To deliver a fairer system, where leaseholders are empowered and have greater security and control over their property, with increased transparency over the costs they are charged and improved access to redress when things go wrong – and extending the benefits of freehold ownership to more homeowners. As a result of these reforms: 1. More leaseholders will be able to exercise rights to buy their freeholds or extend their lease and it will be easier and cheaper to do so; 2. More leaseholders will also be able to take control of their buildings through exercising the right to manage; 3. Leaseholders will be protected from paying insurance commissions and will be provided with better information on the service charges they pay; 4. Where leaseholders take a dispute to court or a property tribunal, the award of legal costs will be fairer; 5. Access to redress schemes will be extended to all leaseholders and to freehold homeowners on managed estates; 6. Freeholder homeowners on privately managed estates will gain new rights to challenge costs and the management of their estates; and 7. Prospective homebuyers will also get access to quicker information at a fixed cost to better inform them of the key information relating to their potential purchase.” iv) The IA stated that the reforms “will re-balance power for leaseholders through amendments to leasehold law, providing them with greater control, security and transparency”; v) In chapter 1, addressing “the rationale for intervention”, reference was made to the different types of leaseholder ([1]), and the issues of control and transparency which leaseholders (in context, of all types) faced. At [5], the IA stated that “Government intervention is needed to help rebalance power towards leaseholders, changing this market to better empower leaseholders to have greater control and say over the management and associated costs of the homes they have paid for, whilst maintaining the legitimate rights of freeholders (landlords)”; vi) Paragraph [6] referred to economic market failures in the leasehold sector, including an “inherent power imbalance” between tenants and landlords, asymmetry of information, high barriers to entry and exit, and a separation of control from liability for costs; vii) Paragraph [7] identified other reasons to justify intervention in the leasehold market, including equity/fairness, simplifying an overly complex process and remedying the marriage value problem; viii) The “key challenges” section referred to the “current leasehold system” as being “in need of comprehensive reform”, “outdated and unfair, leaving the balance of power tilted too far in favour of landlords” ([23]), and to leasehold as a “time-limited asset, the value of which deteriorates over time” ([24]); ix) At [75], the policy objectives were summarised as being “to make the leasehold market fairer and more transparent, where leaseholders have greater security and are empowered to take control over their property and its management, with improved access to redress where things go wrong.”
“39. In the case of tenanted property, the transfer of marriage value is a transfer between one landlord and another. It is acknowledged that the removal of the requirement to pay marriage value will therefore benefit landlords of tenanted property as well as owner-occupiers. This is an effect of the policy objective to simplify the process, meaning that all leaseholders benefit from the reforms regardless of any other status they may hold. 40. To exempt landlords from the marriage value transfer would complexify the law, when our policy objective is to simplify it. The original 1967 Act did indeed only confer enfranchisement rights to resident leaseholders, but the 2002 Act later repealed the residency test. The reforms do not include differential pricing between owner-occupiers and landlords, on the grounds firstly of complexity and secondly of unintended consequences. For example, freeholders may be incentivised to sell to landlord-leaseholders rather than owner-occupiers, being able to receive higher premiums from them, and “accidental” landlords, such as those who’ve inherited property or who have had to move out of their primary residence, but do not own another, would find themselves paying the differentially higher price. 41. Exempting landlords might also impose costs on the tenant, say, where a lease is running down to 80 years, and the landlord can’t afford to pay the marriage value, and so has to sell the property to prevent the diminution of his interest, and evict the tenant. Alternatively, if the landlord proved unable to prevent the lease from falling to 80 years or below, since his interest would be diminishing, so might his commitment to maintaining the property in good standard. Furthermore, the existence in the market of properties liable for marriage value reduces market liquidity, since they are difficult or impossible to mortgage.”
“the Government’s programme aims primarily to improve the leasehold system for leaseholders” and that the object was “improving access to enfranchisement” and promoting “transparency and fairness in the residential leasehold sector.”
“Government intervention is needed to help rebalance power in the market and empower leaseholds to take greater control of the homes they have paid for, whilst maintaining the legitimate rights of landlords/freeholders.”
“The Leasehold and Freehold Reform Act 2024 is a landmark piece of legislation that addresses issues that have caused widespread concern about the plight of leaseholders, as evidenced by Government consultations, and numerous reports such as those from the Housing, Communities and Local Government Select Committee, the Law Commission and the CMA. These concerns are shared by all the major political parties, which led to the cross-party support the legislation received during its passage through Parliament.”
“While ensuring sufficient compensation is paid by enfranchising leaseholders to landlords to reflect their legitimate property interests, the Government’s aims and objectives in implementing the enfranchisement reforms contained in theLeasehold and Freehold Reform Act 2024 are: a. To put an end to the leasehold system of home ownership and support the transition to freehold ownership of flats and houses and ultimately commonhold ownership of flats, by ensuring the cost of enfranchisement is fair and reasonable. b. To rebalance power in the enfranchisement market, making enfranchisement easier for leaseholders and preventing them from being required to overpay in order to obtain security of tenure or ultimate ownership of properties and removing elements of the costs that the Government believes are unfair. c. To protect enfranchising leaseholders from the consequences of high and escalating ground rents”
“Principles of appraisal Appraisal is the process of assessing the costs, benefits and risks of alternative ways to meet government objectives. It helps decision makers to understand the potential effects, trade-offs and overall impact of options by providing an objective evidence base for decision making. Appraisal: The appraisal of social value, also known as public value, is based on the principles and ideas of welfare economics and concerns overall social welfare efficiency, not simply economic market efficiency. Social or public value therefore includes all significant costs and benefits that affect the welfare and wellbeing of the population, not just market effects. For example, environmental, cultural, health, social care, justice and security effects are included. This welfare and wellbeing consideration applies to the entire population that is served by the government, not simply Taxpayers ... ”
“The Government is aware that some leaseholder landlords are overseas investors, but would note that some freeholders are overseas investors too.”
“to address these issues and reform leasehold enfranchisement in order to rebalance power in the market and empower leaseholders, whilst maintaining the legitimate right of freeholders.”
“An Act to prohibit the grant or assignment of certain new long residential leases of houses, to amend the rights of tenants under long residential leases to acquire the freeholds of their houses, to extend the leases of their houses or flats, and to collectively enfranchise or manage the buildings containing their flats, to give such tenants the right to reduce the rent payable under their leases to a peppercorn, to regulate the relationship between residential landlords and tenants, to regulate residential estate management, to regulate rentcharges and to amend theBuilding Safety Act 2022 in connection with the remediation of building defects and the insolvency of persons who have repairing obligations relating to certain kinds of buildings.”
“It may also be necessary to consider how a decision to cap ground rents for enfranchisement purposes would interact with Government’s intention to limit ground rents in future leases to a peppercorn (nil monetary value) – in particular, whether the proposed exceptions to the ground rent ban which Government has identified point to a need for any further exceptions to a cap on ground rents in enfranchisement valuations.”
“Some pointed out that Nationwide’s decision to change its lending criteria for new build leasehold properties (referred to in para. 50) had been misinterpreted by conveyancing solicitors as applying to existing leases, resulting in some leaseholders being forced onto less favourable mortgage terms”
“There is no set definition of an onerous ground rent, though it seems to have become generally accepted in the market (reflecting a view that has conventionally been held by valuers for many years) that a ground rent above 0.1% of the property’s freehold value is onerous”
“Our references to a 0.1% threshold, and a cap set at that level, drew on a range of factors, including lenders’ policies, Tribunal decisions, general understanding and conventions among experts in the sector, a Select Committee report, and the consultation responses we received. We expressed our own conclusion on them, and set out an option for reform for Government to consider. In the footnote to paragraph 3.52, as you note, we refer expressly to some of these sources from which that view stems, including Millard Investments Ltd v Cadogan (LON/LVT/1756/04) and The Nationwide Building Society’s lending policy for new-build properties. We also referred to another case, Roberts v Fernandez (LRA/14/2014), in which a ground rent of 0.21% was suggested to be onerous. We also refer in that footnote to the Housing, Communities and Local Government Committee’s Report, “Leasehold Reform” (Twelfth Report of Session 2017-19). At paragraph 91 of that Report, the Committee wrote that in its view (having heard evidence from a range of stakeholders): Any ground rent is onerous if it becomes disproportionate to the value of a home, such that it materially affects a leaseholder’s ability to sell their property or obtain a mortgage. In practical terms, it is increasingly clear that a ground rent in excess of 0.1% of the value of a property or£250 —including rents likely to reach this level in future due to doubling, or other, ground rent review mechanisms—is beginning to affect the saleability and mortgage-ability of leasehold properties. The view we expressed in paragraphs 3.52 and 6.122 also stemmed from other sources. The CML Handbook at the time (now superseded by the UK Finance lenders’ handbook) indicated that a number of lenders other than Nationwide had some sort of lending criteria based on the 0.1% threshold. Moreover, many of the almost 1,100 consultees who responded to our consultation “Leasehold home ownership: buying your freehold or extending your lease” (Consultation Paper No 238) referred to ground rents of above 0.1% as being onerous. As we noted at paragraph 6.138, of the consultees who supported a restriction on the level of ground rent that is taken into account in enfranchisement valuations, over half favoured a cap at 0.1% of the freehold value. We published all the consultation responses we received on our website. As we note above, our references to the 0.1% level in our Report constituted our own conclusion concerning the level above which ground rents would generally be considered onerous. We therefore set out an option (rather than a recommendation) for reform, for Government to consider: Our discussion of the ground rent cap was about identifying, as a matter of legal policy, a suitable threshold above which legitimate concern can be raised about the level of ground rent in a lease – in other words, a threshold above which ground rents could properly be considered to be onerous.”
“When the property to be valued is a freehold subject to a long lease, there is an obvious special purchaser, namely the tenant. The reversion is worth more to him than to others because his lease is a wasting asset, the value of which will inevitably decline to zero unless reinvigorated by extension or merger with the freehold. Thus the value of the lease merged with the reversion is always greater than the sum of the separate values of the two interests. The difference will vary according to the length of the lease: if the unexpired term is very long or very short, so that the reversion or the lease are respectively worth little, the additional value of merger will be low. But when the unexpired term is about to dip below the length which is regarded as adequate security by lenders in the market, it may be considerable. This difference is called the ‘marriage value’.”
“The landlord holds all the cards in any negotiation. …. The landlord is the only person from whom the leaseholder can obtain the freehold or a longer lease, and so has a completely monopolistic and unassailable negotiating position. There are few comparable situations where the bargaining positions are quite so unequal.”
“… On the other hand, leaseholders would argue that the fact that their need to make an enfranchisement claim is borne out of the limited and wasting nature of the asset that they hold means that it is unfair for the landlord to be able to make a profit out of selling his or her interest to the leaseholder rather than to a third party. A landlord should receive the value of his or her asset in the eyes of a third party, and not a profit made as a result of the leaseholder’s willingness to outbid the third party in order not to lose his or her entitlement to possession of the property.” iv) The Law Commission stated at [5.102]: “There are competing arguments as to whether the leaseholder, as special purchaser, should be ignored. Landlords would say that enfranchisement is common and the necessity to enfranchise ought to be well-known to leaseholders, so it is acceptable for their presence in the market (and therefore the payment of marriage value) to be taken into account. On the other hand, leaseholders would say that the very fact that enfranchisement is necessary and common provides even more support for a regime under which only the landlord’s loss, rather than the landlord’s profit, is to be paid. Leaseholders are, in effect, being penalised for enfranchising; they are forced to enfranchise because their lease is running down, but at the same time they have to pay more than any other person would have to pay for the freehold. Leaseholders would also say that Scheme 1 still produces a market value because there is no guarantee that a leaseholder will ever enfranchise – the lease might just run its course.”
“since the statutory requirement is to arrive at ‘the amount which… the interest might be expected to realise if sold on the open market’, the requirement is to arrive at the price to be paid, not that price less deductions for the cost of sale.”
“neither must be considered as acting under compulsion.”
“Around 450 consultees – a notably high number compared to the average of around 300 who responded to each question in this chapter – answered this question, almost all of whom agreed with our position of removing the two-year ownership requirement. Consultees supported our suggestions that the requirement is easily avoided, that it causes delays and complications for leaseholders.”
“For sophisticated commercial investors, the ownership requirement is easy to avoid; for ordinary leaseholders, it can comprise a serious obstacle to exercising enfranchisement rights, often by being responsible for the premium increasing over the two-year period. These points have been confirmed to us both by consultees and by our advisory groups.”
“143. There are also some costs to freeholders that we haven’t been able to monetise. Freeholders of mixed-use buildings with over 25% up to 50% non-residential floorspace usage will potentially be subject to collective enfranchisement and right to manage claims where under existing legislation they could not have been. Freeholders argue the potential for claims will make investment more expensive and discourage redevelopment of mixed-use spaces such as high streets, representing an associated depreciation in the value of existing assets in such spaces. Freeholders also argue a successful claim may result in several costs. Freeholders argue that a successful collective enfranchisement claim of such a building will negatively impact on the value of other adjacent properties in areas such as high streets and mixed-use developments, where single ownership of multiple adjacent mixed-use properties is common. They argue the inability to manage a contiguous portfolio will negatively impact the value of any remaining properties. They argue this fragmented ownership will also discourage future redevelopment and investment and make it more expensive with associated valuation implications. 144. While it is accepted there could be some impact on investment in mixed-use development and new supply, and the data in this space is limited, the Government is not convinced that an increase of the non-residential limit to 50% will lead to a significant detrimental effect on investment in mixed-use buildings and developments, including for regeneration. Decisions on the form of new or regenerative development will be affected by many factors of which the non-residential limit is one. Additionally, by an amendment made by theCommonhold and Leasehold Reform Act 2002 , the non-residential limit for collective acquisition has been raised before, from 10% to 25%, and similar concerns were raised at that time, but investment in mixed-use buildings up to 25% non-residential floorspace has continued. Housing supply had continued to increase to the highest level in 2019-20, the highest in over 30 years, despite the previous change and most of these have been built by private providers for market sale. 145. Moreover, successful leaseholder-led management of mixed-use buildings already takes place in mixed-use buildings with up to 25% non-residential floorspace, and building maintenance and management may also be of higher standard if the responsibility lies with leaseholders who are likely to be more invested in it, given that they live there and own properties in the building. Appropriate safeguards for landlords to act against poor management of the building are also in place where the leaseholders take up their right to manage and freeholders will continue to enjoy protection where a building can reasonably be described as substantively non-residential. 146. The government’s view is that increasing the non-residential threshold is a proportionate change that will broaden access to collective enfranchisement and the right to manage for leaseholders, giving them more choice and control over the management of their building, and that the significant benefit to leaseholders outweighs the potential concerns. Where there are viability concerns with a development, there will be a range of options developers can explore to adapt or re-design their proposals. Many new purely residential buildings and mixed-use buildings are being built where leaseholders have the right to enfranchise and the right to manage and this has not deterred investment overall.”
“149. Freeholders have also argued that the use of a mandatory leaseback as part of a successful collective enfranchisement claim could represent a significant loss to them. They argue they will be required to exchange a freehold interest for a less valuable leasehold interest. They argue that they will be unable to realise redevelopment opportunities for such units without freehold ownership of the wider building, making the leaseback less valuable than the freehold interest they lost. They argue that commercial units will be less attractive to commercial tenants if they only own them on a leasehold basis as an intermediate landlord. Commercial tenants will want assurance that the wider building will be maintained to an acceptable standard and faults dealt with swiftly, something they will not be able to guarantee without freehold ownership of the wider building. They argue that this loss in value will be exacerbated if leaseholders are unable to successfully manage these buildings following the transfer of freehold ownership. For the above reasons, freeholders argue that mandatory leasebacks will discourage redevelopment and investment in mixed-use buildings and spaces in the same way as increasing the non-residential limit to 50%. Whilst we acknowledge this concern, we note that the Law Commission stated, ‘a 999-year leaseback is a valuable interest […] [and] virtually the whole of the value of the relevant part of the premises remains with the landlord’. 152. We do not expect freeholders will exit the market as following our reforms; many freeholders will continue to hold a valuable long-term interest in leasehold buildings, including from the receipt of ground rent where permitted and premiums from lease extensions. While we are making it easier and cheaper for leaseholders to acquire their freehold, and this may displace freeholders of some buildings, it is possible that freeholders [subject to collective enfranchisement] might expect to hold 999-year leasebacks over flats not participating in the enfranchisement. They would then continue to receive income from a share of the premium in the event they decided to extend their leases. …”
“While it is difficult to generalise about freeholders (who will hold different portfolios of short and long lease properties, and with different ground rents), large freeholders, charities who own freeholds, and pension funds are very unlikely to rely solely on income from enfranchisement. Freeholders often have diversified business interests, which mitigates the financial impact and reduces the likelihood of insolvency. We think that freeholders who hold a significant number of freehold titles are likely to pursue one of two main investment strategies: there will be those who hold a portfolio comprised of modern developments who generate an income through ground rents and there will be those who hold the freeholds of older properties who look to generate an income from enfranchisement. For freeholders of older properties, there is a higher likelihood of leases 80 years or under and therefore payment of marriage value. For portfolios of modern leases, we know that there is a higher prevalence of leases with high or escalating ground rents. For these properties, while enfranchisement may be less common currently, there is an expectation that when it arises a significant proportion of the premium will relate to the level of ground rents. These investments are therefore significantly affected by the 0.1% on ground rent in the valuation calculation.”
“Paragraphs 4 and 5 of Schedule 1 provide for an exemption from collective enfranchisement claims for community-led housing (CLH). The exemption will apply to a CLH organisation which has obtained a declaration from the Tribunal to that effect that it satisfies or will satisfy the definition of community-led housing. A1P1 is engaged by this measure in the sense that unless the application process for an exemption is applied for these types of houses will not be exempt from the wider reforms. The measure is proportionate as the exemption is a means of providing an affordable supply of housing to members of a community for the long-term benefit of that community as affected properties will remain in community ownership, which is a legitimate policy aim. For certain, specified leases of inalienable National Trust land, for example, leases of visitor attraction properties, the National Trust will enjoy a complete exemption from all enfranchisement claims under the new regime in the Bill, though on the basis that where any such leases would benefit from the lease extension right under the LRA 1967 Act, that right will remain available. All other leases of inalienable land will be excluded from freehold acquisition rights, but will benefit from the same 990-year lease extension right as all other long leaseholders. Where a leaseholder of inalienable National Trust land has extended their lease under the new regime in the Bill, the lease will thereafter be subject to a right of first refusal in favour of the National Trust. The National Trust will be entitled to “buy back” the lease whenever the leaseholder seeks to dispose of it. A1P1 is engaged by this measure though Government considers it to be compliant. The proposals have been consulted on and designed in conjunction with National Trust leaseholders and the National Trust, with a balance being struck between the interests of leaseholders having the same lease extension rights as ordinary leaseholders, with that of the National Trust in holding the property for the benefit of the public in perpetuity. Freehold acquisition rights continue to be excluded and where a lease is extended, the right of first refusal will enable the National Trust to take back the property if the leaseholder wishes to sell. The new valuation methodology will apply to provide compensation to the National Trust for lease extensions at market value. Paragraphs 7 and 8 of Schedule 1 provide for the following new regime of enfranchisement rights for National Trust owned properties, in place of the current limited rights available to leaseholders.”
“The question in Wilson was whether it was permissible for a court considering the Convention compatibility of an Act of Parliament to consider statements made during the passage of the Bill about its aims and objectives. It was in that context that Lord Nicholls said that it may be necessary to look outside the statute ‘in order to see the complete picture’, including ‘the nature and extent of the social problem (the 'mischief') at which the legislation is aimed and that, if information relevant to these matters had been provided by a minister or other member ‘in the course of a debate on a Bill’, the courts must be able to take it into account, subject to strict caveats: see [61]-[64] and [66]-[67]. In our judgment, these passages apply only to statements made during the passage of the Bill which became the Act whose compatibility is in issue, and not to other parliamentary statements relied upon by one side or other in support of a submission on a contested factual issue.”