Judicial Review Day 3: Freeholders incur judge’s wrath as government opens its case

By Liam Spender

Liam Spender is a trustee of LKP and head of real estate litigation at Velitor Law, whose class action leasehold insurance commissions is reported on BBC here The views expressed here are his own.

Today saw the third of four days in the freeholders’ judicial review challenge to the Leasehold and Freehold Reform Act (“LAFRA”).

Court 76 was packed again albeit the ranks of freeholder representatives in the public gallery have thinned out a little. My own attendance was spotty today because of pressure of work and I missed the last hour.

[That was unfortunate, as the day was attended by quite a number of leaseholders including Michele Sheldon, the playwright of ‘Fleecehold’ about the NLC’s campaign SOK]

Most of the morning was taken up with the remaining freeholders’ arguments. The government began its case just before lunch and continuing into the afternoon.

The day began with Martin Westgate KC (for the Portal Trust) finishing his argument. Many of his points were repeating earlier arguments.

His central propositions were that LAFRA was not targeted effectively at owner-occupiers, that the government had admitted it was badly drafted and that it was inconsistent with other statutes. Mr. Westgate cited the Leasehold Reform (Ground Rents) Act 2022 as an example of inconsistency. That Act removed ground rents for new residential leases and defined a residential lease. Mr. Westgate said it was much better targeted to addressing ist stated aims than LAFRA, which applied too broadly and helped buy-to-let landlords who did not need help in the same way as residential leaseholders.

Lord Justice Holgate said neither bad drafting nor inconsistency would make LAFRA unlawful. He noted much modern legislation was complex and had drafting issues. He also said that LAFRA was intended as the second of three stages of reform to culminate in the widespread adoption of commonhold, a point echoed by Mr Justice Foxton.

At the end of his section, Lord Justice Holgate rapped Mr. Westgate over the knuckles for his comment that he was short on time and was unclear on what certain aspects of the government’s case were.

The judge said it was up to the freeholders’ counsel to cooperate on dividing up the reply and they would have to wait to see what the government had to say. He also said it was counsel who agreed that four days would be enough and the hearing was listed on that basis.

Mr. Westgate then handed over to James Maurici KC (for Cadogan / Grosvenor). Mr. Maurici repeated many of the points made by Stephen Jourdan KC, for Long Harbour, yesterday, such as the one that LAFRA was unlawful because it radically changed the price payable for lease extensions and freehold purchases but did not make an equivalent change to landlords’ compensation.

Mr. Maurici also repeated the argument he made yesterday that “grandfathering” should have been adopted to preserve rights to marriage value that existed at a given point in time.

Mr. Maurici referred to a number of documents Cadogan / Grosvenor had submitted from expert reports to witness evidence. Mr. Maurici argued these made good his point that everything in LAFRA was against the freeholders without proper compensation.

Mr Justice Foxton said it may not be possible to assess whether LAFRA was against the freeholder claimants until the deferment and capitalisation rates are decided. He also said that whilst it was important LAFRA is consistent with other leasehold reform legislation the landscape is still evolving.

Lord Justice Holgate became visibly angry at Mr. Maurici when he tried to speak to a note he handed up earlier in the morning.

Lord Justice Holgate complained that Mr. Maurici was supposed to be addressing the court on the issue of 990 year lease extensions and mandatory leasebacks in collective freehold purchases. Lord Justice Holgate said that Mr. Maurici was off topic.

He said he had heard what Mr. Maurici was saying “umpteen times before” and that he wanted the best example and clearest documentary reference he could give in support of the points he was making. Mr. Maurici appeared to struggle to provide the answer quickly enough to the judge.

Victoria Wakfield KC (for Albanwise Wallace) then spoke on deferment and capitalisation rates. Lord Justice Holgate shut her down when she tried to explain what these were and their effect on the calculation of the price payable for a lease extension. Lord Justice Holgate said he understood that their purpose was to calculate the present value of an income being brought forward from the future.

Ms Wakefield said the freeholders conceded it was not necessary to know the deferment and capitalisation rates in order to challenge the legality of LAFRA. She argued that could be determined from considering LAFRA’s effects in the round.

Ms Wakfield also said that the freeholders had prepared different declarations of incompatibility in draft. On questioning from Mr Justice Foxton she said that some freeholders could be given declarations of incompatibility even if others were not.

Shortly before lunch Sir James Eadie KC began the government’s defence. Sir James has an advantage over all of the freeholders’ counsel. He has argued (and won) many of the key cases on the Human Rights Act of the past 15-20 years, including many cited during argument in this case.

Sir James argued firmly that LAFRA was not unlawful. He said that LAFRA had to be considered as a whole and in broad terms, particularly where it affected a bundle of property rights. Parliament enjoyed a wide discretion in how it chose to advance leasehold reform.

All of the arguments put forward by the freeholders had been considered over many years, including the detailed work undertaken by the Law Commission. Some of the freeholders’ arguments were “a long tilt at the windmill”, particularly those over 990 year extensions versus 99 year extensions.

Sir James’s legal argument centred around whether the measures in LAFRA are a proportionate interference in freeholders’ rights and whether Parliament has struck a fair balance. He cited the Bank Mellat test, requiring the government to show (1) the objectives of LAFRA are sufficiently important to justify an interference in property rights (2) whether LAFRA is rationally connected to its outcome (3) whether a less intrusive measure could have achieved LAFRA’s objective and (4) whether the interests of society in achieving the objective outweigh the rights of any individual freeholder.

Sir James said the government’s position was that there was no expropriation of freeholder property under LAFRA. There is a control on use.

He cited examples from the tobacco plain packaging case and an immigration case showing that even where the state confiscates or stops the use of property without compensation this does not amount to a deprivation.

There was back and forth between both judges and Sir James on whether this case does involve a deprivation of freeholders’ property. They also debated the spectrum of control of use and deprivation and how that relates to any compensation that may be payable. Cases on nationalisation were discussed.

Sir James argued that Parliament had a wide margin of discretion at each stage of the Bank Mellat test. The measures adopted in LAFRA passed the test. All of the supposed alternatives offered by the freeholders would not have achieved the aims of LAFRA and would have introduced. Sir James took the judges to a series of passages in the Law Commission’s reports showing how the alternatives had been considered and rejected.

Sir James also noted that in 1986 in James the European Court of Human Rights had found that the Leasehold Reform Act 1967 was compatible with the right to peaceful enjoyment of private property both without marriage value (as it was enacted) and with marriage value (as amended in 1974).

Lord Justice Holgate said that the Bank Mellat test was never an easy test for judges to apply. He acknowledged that English courts face the added difficulty of not being able to question the quality of debate in Parliament. He added that this case raised “quintessentially political” questions about a matter of great social importance. There was little guidance from the European Court of Human Rights case law on how to approach LAFRA because the English leasehold system is very different from that found on the Continent. He agreed with Sir James that ultimately this case was a question of whether the decision Parliament had made in LAFRA was within the margin of its discretion.

In his exchanges with Sir James, Mr Justice Foxton observed that Bank Mellat may be interpreted as separating objects from effects of legislation. Sir James said that was easier when considering a case of alleged discrimination. In this case the stated aim of LAFRA was to achieve a redistribution of wealth and power between leaseholders and freeholders.

The judges appeared to agree with Sir James that if the aim of LAFRA to simplify the property system, and that reducing the price payable for lease extension and freehold purchases could not be achieved without the effect of redistributing wealth from freeholders to leaseholders, that did not necessarily mean the measure was unlawful.

Any change in any area of law creates winners and losers. Sir James said the Court of Appeal had recently endorsed that approach in Hippersley Point.

Damp cycle ride on a Saturday morning leads to Building Safety Act victory in Court of Appeal

Other issues covered by Sir James included the “ab ante” test, whether the court could rely on the explanatory notes and impact assessment before Parliament during the passage of LAFRA as an aid to interpreting legislation and whether regional variations in costs and benefits between London and the rest of England and Wales had been considered.

The government’s case will continue tomorrow. Sir James Eadie will finish his argument during the first part of the morning. Richard Moules KC will then give the government’s defence to the alleged defects in its impact assessment of the costs and benefits of LAFRA. Mark Loveday will give the government’s defence on technical valuation points. The freeholders will then reply, probably in the late afternoon.

Overall, the judges’ pattern of unsympathetic interventions in the freeholders’ case continued, punctuated with visible irritation in the morning. By contrast the judges seem much more receptive to the government’s arguments and are willing to debate them. Most, but not all, of the judges’ interventions in the government’s argument today were sympathetic. Most of the interventions were apparently aimed at finding the limits of the government’s defence rather than pointing out holes in its core argument.

The case continues for its final day tomorrow. Court sits at 10.30 tomorrow morning.