We have previously mentioned that two legal challenges have been lodged against the Leasehold and Freehold Reform Act 2024 (‘LFRA’) on Human Rights grounds, on the basis that the Act is incompatible with the right to ‘peaceful enjoyment’ of property under the Human Rights Act 1988.
There has been speculation that there were other challenges ‘waiting in the wings.’ All those working in this area are keen to understand the nature of these challenges and their likely impact on the timetable for the implementation of the valuation aspects of the Leasehold and Freehold Reform Act 2024.
At the recent ALEP Conference, we learned that following a freedom of information request made of the government by Charles Tellerman, a surveyor working in leasehold reform, that there are in fact seven cases challenging the legislation on Human Rights grounds and that there are legal proceedings with the High Court.
While we know the basis of the challenges being brought by Annington and the John Lyons Charity, the specific details for the remaining five cases have not yet been made public, though we can speculate that they will be concerned with the impact of the valuation reforms including the proposal to remove marriage value from the calculation as well as the changes to the valuation methodology.
A case management conference – an early hearing for the court to identify and understand what the real issues in dispute are and to consider whether they can be narrowed before trial – was held by the High Court on 17 October. The government will then be required to file its defence with a further initial hearing scheduled for January 2025. It is also likely that these cases will also have been lodged with the European Court of Human Rights in Strasbourg.
The relation between the Human Rights Act and property rights is set out in Protocol 1, Article 1 of the European Convention on Human Rights and this provides that: “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.”
As such, the government must strike a fair balance between the interests of the property owner on the one hand, and the general interests of wider society on the other. The question of whether this balance has been correctly struck will depend ultimately on the degree to which the legislation seeks to ‘control the use’ of these property assets (freeholds) balanced with a consideration of whether these measures go so far as to ‘deprive’ the owner of the use of them altogether.
If and when these cases proceed, these arguments will need to be fully explored by the UK Courts; the prospect of appeals means that it could take some considerable time for the matter to be dealt with. Alongside that is the question of any reference to the convention court in Strasbourg where it can take years to reach the point of a hearing.
Although the Leasehold and Freehold Reform Act 2024 received Royal Assent on 24 May 2024 many of its provisions are not yet in force and will require secondary legislation in order to be brought into force.
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.
Ultimately, the outcome will depend on whether the government can show that the interference with property rights is justifiable or not, or whether freeholders have a viable case. The Residential Freehold Association has previously said plans to cap ground rent and regulate service charges could leave the government open to compensation claims in the region of £30 billion.
That comment related to the previous government’s proposals to ban ground rent under all existing leases. The latest challenges relate to the change to the valuation mechanism and the removal of marriage value along with the deemed cap on ground rent when calculating the premium, along with the removal of the ability of the landlord to recover some of its costs.
Clearly the government would prefer to avoid paying such hefty compensation to freeholders and it is therefore likely that the more contentious aspects of the 2024 Act, including valuation reform, will not be implemented any time soon, pending the outcome of the human rights challenges.
Leaseholders may be wondering when the reforms promised by the 2024 Act will commence. Whether we will see some of the less contentious aspects of the Act, such as abolition of the two-year rule, brought in sooner via commencement orders or statutory instruments, remains to be seen – this would at least give the government the opportunity to show some progress on leasehold reform, without having to address the implementation of the more difficult and contentions areas, such as valuation.
Labour has said it intends to press ahead with all of the Law Commission’s proposals for leasehold reform during this parliament. The complexity of such a task will require huge tracts of parliamentary time and careful consideration of the potential consequences of reform on other aspects of the law.
It is easy to forget that this time last year we hadn’t even had sight of a draft Leasehold Reform Bill – with the 2024 Act now on the statute books, the government must grapple with difficult questions about how best to bring in the provisions of that Act, not to mention how it will make commonhold fit for purpose in order to achieve its ultimate goal of abolishing residential leasehold altogether.
The King’s Speech promised a new Commonhold and Freehold Reform Bill and it also possible that some of these changes may well be wrapped into that legislation when it is brought forward.
What does all this mean for those affected by the changes? The short answer is that significant valuation change does not look likely any time soon. It is therefore a question for those affected as to whether they act or not.
Those with leases close to the 80-year mark may well want to take action now so as to avoid paying marriage value. Those with leases over 80 years may want to wait to see how these human rights challenges play out, although for this group the main difference is likely to be in relation to costs unless they have a particularly high ground rent. If you are affected by these issues, it might be helpful to take valuation advice so as to understand the likely level of ‘saving’ under the proposed new valuation regime (as and when this may be enacted) in order to decide what to do.
Whilst we don’t know all the details, it is highly likely that the challenges and the potential threat of sizeable compensation payments, will delay the implementation of the valuation provisions in the 2024 Act. We may know more in January when the next hearing in these cases takes place.
Contact our Landlord & Tenant team
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 28 October 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.