Judges reject challenge by freeholders over changes to legislation on determination of sums payable on exercise of right to enfranchise

In ARC Time Freehold Income Authorised Fund & Ors v Secretary of State for Housing, Communities and Local Government [2025], Lord Justice Holgate and Mr Justice Foxton dismissed each of the claims, brought by owners of freehold and other reversionary interests of dwellings.

The judges found that the amendments brought in through the Act to the ground rent cap, marriage value, and costs recovery were not incompatible with the European Convention of Human Rights.

The claimants had asked the court to declare that the amendments made by the LFRA 2024 were “incompatible” with Article 1 of the First Protocol (A1P1) to the European Convention of Human Rights (ECHR), which relates to the protection of property.

The judges observed that a “notable feature” of most of the claimants was the extent to which their freehold interests were concentrated in London, and in parts of London referred to by valuers as “Prime Central London” (PCL), where property values are particularly high.

Lord Justice Holgate and Mr Justice Foxton said: “London has a particular concentration of leasehold property, both in terms of numbers of properties and (particularly) in aggregate value.

“There was evidence before us which suggested that 15% of the total leasehold dwellings (houses and flats), and 35% of flats, are in London. However, 68% of flat value transfer is located there. We have been told that 14% of all leasehold flats in London are to be found in three boroughs (Westminster, Kensington and Chelsea, and Camden), with 47% of the potential “marriage value” on London flats in those three boroughs, and 32% of the figure for England as a whole.

“Those particular features of the London property market featured in the consideration given to leasehold enfranchisement in the run up to the LFRA 2024, but we have kept in mind at all times that the challenges have been brought to a statute which applies throughout the country, with the clear majority of freeholds affected being found outside London.”

The parties agreed a list of the central issues raised by the claims, set out by the judges as follows:

“(1) Aims: what are the aims of the three measures in the LFRA 2024 under challenge.

(2) Marriage value (generally): Whether the exclusion of ‘marriage value’ from enfranchisement premiums, by s.37 and Sch. 4, para.17(3) of the LFRA 2024, is incompatible with A1P1.

(3) Marriage value as regards charities: Whether the exclusion of ‘marriage value’ from enfranchisement premiums, by s.37 and Sch. 4, para.17(3) of the LFRA 2024, is incompatible with A1P1 insofar as it contains no exception(s) for charities.

(4) Cap on ground rents: Whether the introduction of a cap on existing ground rents in enfranchisement calculations at 0.1% of the freehold vacant possession value (FVPV), by s.37 and Sch. 4, para.26(4) of the LFRA 2024, is incompatible with A1P1.

(5) Recovery by landlords of non-litigation-costs: Whether the abolition of the statutory right for freeholders and any intermediate superior landlords to recover from tenants the reasonable non-litigation costs that the freeholders and superior landlords incur on enfranchisement and lease extension claims (subject to specified exceptions), by ss.38 and 39 of the LFRA 2024, is incompatible with A1P1.

(6) Cumulative effects: whether the measures at (2), (4) and/or (5) above, as impugned by each claim, are jointly incompatible with A1P1. In determining issues (2), (4), (5) and/or (6), as impugned by each claim, the claimants say that these issues must be judged in the light of the cumulative changes to the nature and scope of the leaseholders who may benefit from enfranchisement rights, and on what terms, as effected by successive Acts post the LRA 1967 up to and including ss. 29 and 32 of the LFRA 2024.

(7) Exceptions: Whether each of the measures at (2) and (4) above is incompatible with A1PI and/or Art 14 taken together with A1P1 insofar as they contain no exception(s) (a) for charities or (b) to exclude from the new valuation regime arrangements of the kind that Portal has with SHA where the lessee is not a homeowner or consumer but holds their interest for business purposes.

(8) Standing: Whether the Portal Trust has standing to bring its claim.” [By the time of the hearing before the Divisional Court, the defendant was no longer raising an issue as to Portal's standing to bring its claim and so the court did not need to consider that matter.]

Dismissing the claims, Lord Justice Holgate and Mr Justice Foxton concluded 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”, were compatible with A1P1.

One of the claimants, John Lyon’s Charity, had previously observed that the former Conservative government “failed to acknowledge” the “significant adverse impact” the LFRA 24 has on charities who rely on income from leasehold estates.

It argued that the implementation of the Act would have a “particularly devastating” impact on its own work – meaning that children would be left without support and critical organisations would face severe underfunding.

Since 1991, the charity has awarded more than £208 million in grants, supporting over 1,700 organisations providing services for young people across North and West London.

John Lyon’s Charity warned that many of these organisations rely on the charity as their primary or sole source of funding.

Responding to the ruling, the charity said: “We are disappointed by the decision that John Lyon’s Charity has not been granted an exemption when others in the charitable sector have. While we support the principle of leasehold reform, this ruling has implications for how the charity generates income.  

“Please be assured that our commitment to funding vital grassroots services for children and young people remains unchanged. We are carefully reviewing the impact of this judgment and considering next steps to ensure we can continue to deliver on our mission.”

Lottie Winson