The High Court has decisively rejected a major legal challenge brought by a consortium of prominent freeholders against the Leasehold and Freehold Reform Act 2024.
In a judgment delivered in October 2025 (ARC Time Freehold Income Authorised Fund & Ors v Secretary of State), the Divisional Court dismissed all claims that the Act’s key provisions breached the landlords’ human rights. The ruling is a significant victory for the government and leasehold campaigners, paving the way for the full implementation of reforms designed to make enfranchisement (buying the freehold or extending a lease) cheaper and easier for millions of leaseholders.
The judicial review was brought by a group of major landowners, institutional investors, and charitable trusts, including the Grosvenor Estate and the Cadogan Estate.
The landlords’ challenge was centred on Article 1 of the First Protocol (Article 1) of the European Convention on Human Rights, which protects the “peaceful enjoyment of possessions.”
The Legal Challenge: Article 1
Article 1 states that “no one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law.” Interference with this right, such as state control of property use or deprivation of property, is only permissible if it strikes a “fair balance” between the public interest and the rights of the individual.
The claimants argued that the 2024 Act failed to strike this fair balance and amounted to an expropriation of their property rights without adequate or fair compensation.
The Three Core Arguments
The freeholders’ legal challenge targeted three specific (and not-yet-implemented) provisions of the Act that fundamentally change how the price of a lease extension or freehold purchase (enfranchisement) is calculated:
- Abolition of ‘Marriage Value’: The Act abolishes “marriage value.” This is the additional value created when a lease with less than 80 years remaining is extended, representing the “merger” of the landlord’s and tenant’s interests. The law previously required this “profit” to be split 50/50. The landlords argued that their 50% share was a tangible part of their property right, and its abolition was a form of confiscation, but for leaseholders with short leases it often made extending a lease prohibitively expensive.
- Capping of Ground Rent: The Act mandates that for valuation purposes, any future ground rent income be capped at 0.1% of the property’s freehold value. Landlords argued this artificially deflates the value of their freehold interest (their “reversion”), as it does not reflect the actual, often much higher, contractual ground rent they are owed, thereby reducing their compensation.
- Removal of Cost Recovery: The Act requires each party to bear their own non-litigation costs (such as valuation and legal fees) during an enfranchisement claim. Previously, leaseholders were typically required to pay the landlord’s reasonable costs. The claimants argued this forced them to finance the “taking” of their own property, further upsetting the “fair balance.”
The landlords contended that the cumulative effect of these three changes was disproportionate and punitive.
The High Court’s Judgment
The court, led by Lord Justice Holgate and Mr Justice Foxton, rejected the freeholders’ arguments. The judges found that the reforms, whether assessed individually or cumulatively, are compatible with Article 1.
The court’s reasoning relied on several key legal principles:
- Legitimate Public Interest –The court affirmed that reforming the “structural unfairness” of the leasehold system, which has been the subject of cross-party consensus for years, is a legitimate aim in the public interest.
- “Margin of Appreciation” – The judgment gave significant weight to Parliament’s “wide margin of appreciation.” This is a legal doctrine acknowledging that democratically elected legislatures are better placed than courts to decide on matters of social and economic policy, such as how to balance competing property interests.
- Proportionality and “Fair Balance” – The court found that the reforms were a proportionate means of achieving the legitimate aim. It held that the Act did not deny landlords compensation but rather changed the method of calculation to rebalance the system in favour of leaseholders.
- Legal Precedent – The ruling is consistent with the decision James v UK (1986). In that case, the European Court of Human Rights upheld the Leasehold Reform Act 1967 against a similar challenge, confirming that leasehold reform to grant occupiers ownership rights was a valid social policy because eliminating perceived social injustices is an example of the functions of a democratic legislature.
Impact of the Decision
This ruling is a major victory for the government, as it removes the primary legal barrier to implementing the Act’s most significant cost-saving measures for leaseholders. The freeholders, however, are widely expected to seek permission to appeal the decision at the Court of Appeal, which could prolong the legal uncertainty.
Secondary Legislation
The Act was fast-tracked through Parliament during the “wash-up” period before the 2024 general election, leaving many of the technical details to be filled in later by the government. The government is now clear to proceed with introducing the secondary legislation required to commence these valuation provisions, which had been paused pending the outcome of the case.
The judicial review specifically delayed the most critical of these: the regulations setting the new valuation rates. This is the most critical and complex part, and it was the central reason for the judicial review. The Act sets out a framework for valuation but delegates the power to set the actual financial rates to the Secretary of State via regulations. These regulations, which must now be drafted and consulted on, will define the precise numbers for the new enfranchisement calculations. In particular, the Act states that the new premium will be calculated using prescribed rates. These are the new capitalisation rates (to determine the value of the lost ground rent) and deferment rates (to determine the value of the landlord’s right to get the property back at the end of the lease).
This update is for general purpose and guidance only and does not constitute legal advice. Specific legal advice should be taken before acting on any of the topics covered. No part of this update may be used, reproduced, stored or transmitted in any form, or by any means without the prior permission of Brecher LLP.
