In the first of what could be a series of legal challenges to aspects of the Leasehold and Freehold Reform Act, Annington Property Limited (“Annington”) has filed legal proceedings against the Secretary of State for Housing, Communities and Local Government.
Although the Leasehold and Freehold Reform Act 2024 (the “2024 Act”) received Royal Assent on 24 May 2024 many provisions are not yet in force and require secondary legislation. Among them, the 2024 Act includes a new mechanism to calculate compensation payable to a landlord when the landlord is subject to a claim for enfranchisement of a lease with a ground rent attached.
Annington holds an intermediate leasehold interest with respect to the Married Quarters Estate. In 1996 the MOD sold the majority of the Married Quarters Estate (now referred to as Service Family Accommodation) in England and Wales to Annington Homes Ltd for £1.662 bn. The MOD pays Annington Homes a significant sum each year in rent for the properties it leases.
In early 2022 the MOD indicated its intention to seek full ownership of the estate from Annington Homes. This involved exercising a claim to purchase the freehold using the Leasehold Reform Act 1967. (The exact mechanism being quite complex in nature, given the scale of the leases).
In response, Annington has informed the MOD it may pursue legal action. On 15 May 2023 the High Court found in favour of the MOD. This latest claim is separate to Annington’s ongoing litigation with the MOD.
Annington’s claim seeks clarification on the operation of the 2024 Act as “The mechanism as currently drafted in the Act, appears to give rise to the possibility that, in certain specific circumstances, a lessee could acquire the freehold and intermediate leasehold interests for a very low valuation that does not reflect market value.”
Annington’s leases are not ground rents, so they may be outside the scope of the Act. However, it is possible that the lessee could seek to restructure the lease to create a ground rent, and thereby benefit from the 2024 Act including by reducing their cost to enfranchisement significantly.
In addition, if the relevant provisions of the 2024 Act were applicable to Annington once in force, Annington would be at risk of receiving significantly less than market value for that intermediate leasehold interest in the event of a successful enfranchisement claim.
If a claim had not been brought within three months of the date of Royal Assent (i.e. by 23 August 2024), Annington would have lost the right to bring a claim at all, hence its decision to start legal proceedings before the relevant provisions take effect.
Annington claims it “understands that it is likely that a number of other parties will also challenge provisions of the Act in the near term.” Given the 2024 Act was rushed through Parliament in the final “wash up” it is possible that there may be some other grounds for challenge.
Indeed this week we also learned that the John Lyons Charity plans to bring a challenge to the legislation on human rights grounds.
Their claim is different and is on the basis that the Act is incompatible with the right to property under the Human Rights Act 1988 as it will significantly reduce the funds that it receives.
These may not be the only legal challenges to the legislation.
We will therefore have to wait to see how these challenges play out – as it is quite possible that these challenges (or the prospect of them) may delay the implementation of the valuation provisions in the 2024 Act.
For those looking to enfranchise or extend their leases this meansfurther delay and we currently do not have a definitive timescale for the implementation of these provisions. It is very much a case of ‘watch this space’
13 September 2024
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If you have a query concerning leasehold property, then please contact our expert Landlord & Tenant team by emailing leasehold@bishopandsewell.co.uk or call on +44(0)20 7631 4141.
The above is accurate as at 13 September 2024. The information above may be subject to change.
The content of this note should not be considered legal advice and each matter should be considered on a case-by-case basis.
