Judicial Review Final Day: Both sides face a nervous wait, but freeholders have already won delay

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 are his own.

The freeholders’ judicial review challenge to the Leasehold and Freehold Reform Act (“LAFRA”) ended at today.

Court 76 was packed again. My own attendance was spotty today because of pressure of work and I missed about half of the hearing. Where indicated below I have relied on notes from Seb O’Kelly to fill in the gaps.

The day was split between the government and the freeholders. The government finished presenting its case late in the afternoon. The final hour or so of proceedings was split between the various freeholders’ barristers. They responded to the government’s case on behalf of all of their clients.

Judgment was reserved at the end of the hearing. No date was given for when we may expect it. Typically this takes at least several weeks. Perhaps longer because of the summer holidays.

The morning began with Sir James Eadie KC continuing his case on behalf of the government. His legal arguments continued to focus on the correct legal tests to be applied to the determining the freeholders’ challenge. The focus was on the broad margin Parliament was afforded to determine the balance on social measures.

Sir James rebutted forcefully the points the freeholders had made on Lindheim and Karibu. He also echoed the points made by the judges earlier that this was a case involving competing private interests, rather than public and private interests. The balance of proportionality was very different when considering how to balance two sets of private interests to achieve social aims. He argued that the court’s role was supervisory and that was a matter best left to Parliament to decide.

Sir James’s arguments were met with generally sympathetic interventions from both Lord Justice Holgate and Mr Justice Foxton.

Mark Loveday, a leasehold barrister, then responded for the government on technical valuation points around marriage value and the removal of legal costs. Mr. Loveday explained that the Leasehold Reform Act 1967 was the product of pressure from the late Victorian period onward.

It was originally enacted without marriage value. A 1969 case (Custins v. Hearts of Oak) confirmed that marriage value was not originally part of the compensation to the freeholder. The 1967 Act contained a statutory assumption that the sitting tenant was excluded as a potential buyer when determining the price. Amendments in 1974 expanded the scope of houses eligible to extend their leases, removing that assumption. This opened the door to the courts finding that marriage value should be included in the compensation to the freeholder, later adopted in the 1993 Act, when similar rights were extended to leaseholders of flats.

Lord Justice Holgate said he did not think the pre-1967 history, or much of the technical detail, was relevant. He asked a number of questions around the origin of marriage value, that it had not been included in the 1967 Act as originally enacted and tracing its history from 1967 to 2024.

One revealing line of questioning was why marriage value was based on the alleged special status of the leaseholder extending the lease or buying a freehold. The judge noted that there is a 1914 tax case (Inland Revenue Commissioners v. Clay). That case says market value for tax purposes is usually determined without reference to the special characteristics of either the buyer or the seller. He indicated that the reforms in LAFRA were bringing leasehold enfranchisement into line with that principle, restoring the original intention of the 1967 Act.

Mr. Loveday also addressed the proposal to cap ground rents to be taken into account under LAFRA at 0.1% of the freehold vacant possession value. He made reference to the fact that there was a well-publicised doubling ground rent scandal.

The Law Commission had examined this issue when framing its recommendations. This had prompted two responses from Parliament: a ban on new ground rents in 2022 and the cap on ground rent to be taken into account in LAFRA.

On legal costs, Mr. Loveday explained that the removal of the requirement of leaseholders to pay the landlord’s legal costs was to ensure LAFRA is simple to implement. This complemented the move to an online calculator with fixed variables, which is a further aspect of the reforms to be announced by government after the ruling. Costs should therefore be lower for leaseholders in the future – and possibly for freeholders, too, although they lose their game playing advantages.

After lunch, Richard Moules KC responded for the government. He dealt with the freeholders’ arguments on the impact assessment and the proposals to remove the right to legal costs. Mr. Moules also rebutted the freeholders’ argument that there should have been grandfathering rights – that is exempting current leases under 80 years from the reforms – and other exemptions for certain types of freeholder in LAFRA.

Mr. Moules explained that the impact assessment had acknowledged errors corrected in April 2025. This was due to the government using data valuers would not use, such as the GDP deflator measure of inflation. The errors in the impact assessment did not affect the judgment Parliament made. Parliament was provided with information showing that the measures in LAFRA involved a large transfer of value from freeholders to leaseholders. It made a judgment it was entitled to make, which was within the wide margin of discretion.

Lord Justice Holgate asked a series of questions about the detail of the impact assessment. These focussed around what the impact assessment showed, whether it reflected the cost of all leases being extended or only a subset and whether it reflected the costs of all three challenged measures. The judge also asked that the parties prepared a redline version of the impact assessment showing how the figures in the April 2025 amendment relate to the original version.

As to grandfathering and the claims for charitable exemptions made by the freeholders, Mr. Moules said the documents showed that these had been considered by the Law Commission, the government and Parliament and rejected. LAFRA had adopted measures that would be straightforward to implement. Adding exemptions would introduce complexity. This was explained by the relevant minister as the bill passed through the House of Lords.

Lord Justice Holgate and Mr. Justice Foxton both asked questions on this topic. They said that the property of the National Trust was essential to its purpose. The law also provided that property donated to the National Trust was inalienable, so it needed a statutory exemption. The National Trust was not in the same position as a charitable or religious organisations investing in property for income.

On the 0.1% ground rent cap, Mr. Moules echoed points made by Mr. Loveday. Both judges observed that ground rent caps could have formed part of the 2022 Leasehold Reform (Ground Rents) Act but instead a phased approach was chosen.

Mr. Moules also echoed points that both judges had made on previous days. One example being this case concerned the balance between the private interests of freeholders and leaseholders, rather than the public and private interest.

On the removal of the requirement on leaseholders to pay both sets of legal costs, Mr. Moules noted that a lease extension or freehold acquisition was not the same as a compulsory purchase order. Such an order affected a narrow class of people in a defined geographic area. The parties bought out did not have any ongoing interest in the building. That was different from the leasehold case.

Mr. Moules also dealt with the argument from the Portal Trust that LAFRA could have been framed to distinguish between different leaseholders. He said that the measures adopted in the Building Safety Act (applying to qualifying leaseholders) and the 2022 Act (limiting abolition to residential leases) could not be read across into LAFRA because they addressed different aims.

Lord Justice Holgate asked what the aims of the Building Safety Act and the 2022 Act were. Mr. Moules replied that neither addressed leasehold enfranchisement.

The final part of the hearing was taken up with the freeholders’ reply. I was not present for the last part of the hearing and rely on Seb O’Kelly’s notes for this part of the report.

Victoria Wakefield KC (for Albanwise Wallace) reiterated that LAFRA lacked nuance and was not properly targeted, applying to all leaseholders and not being limited to owner occupiers, goes too far. Lindheim shows what happens when Parliament oversteps bounds of its discretion. Ms Wakefield claimed Lindheim had had a notable effect on Norwegian property market.

Ms Wakefield also said that that LAFRA served no valid social policy objective justifying imposing large losses on freeholders. There had been no attempt to strike a fair balance between freeholders and leaseholders. LAFRA is mass expropriation on a huge scale that will benefit leasehold investors by more than £1 billion. This flaw was the product of the fact that the Law Commission had not distinguished between homeowners, consumers and investors. Exempting investors from the benefits of reform was one of the options recommended to ministers before LAFRA.

Monica Carrs-Frisk KC (for ARC Time, GRIF and others) replied on the margin of discretion afforded to Parliament. She said that LAFRA had no justification for a blanket rule of a cap of 0.1% on ground rents included in calculating the price. This is a deprivation of freeholders’ property that the European case law says this requires full market value compensation. The government has not identified any pressing social need for these reforms without compensation. The reforms are unfocused and lack nuance. There is a significant drawback in LAFRA not distinguishing between different types of leaseholders.

Stephen Jourdan KC (for Long Harbour) said that an unintended consequence of LAFRA must be that it affected sites where some of the leaseholders had already enfranchised. That was about 20% of the market. It was rare for all leaseholders to participate in buying the freehold. Those who had bought had paid a price based on marriage value and all ground rent income being included. They would suffer a loss because they could no longer claim either from later joining leaseholders.

Mr. Jourdan also echoed the points made by Mr. Westgate yesterday regarding the Building Safety Act distinguishing between different types of leaseholders. LAFRA failed to do so, meaning people who did not need help to extend their leases nevertheless received help.

Mr. Jourdan also reiterated that compulsory sellers are usually compensated for legal costs. Lord Justice Holgate said that he understood that the Law Commission had not made a recommendation to remove legal costs, but noted that it was concerned that these costs were often disproportionate.

James Maurici KC (for Cadogan / Grosvenor) addressed the legal tests and argued against the way Sir James Eadie had presented the relevant cases ( Sporrong, Annington, Lindheim, Karibu). He also reiterated his point that the Government had prepared a materially inaccurate impact assessment. That was “irrational” in the public law sense. Parliament had relied on an irrational impact assessment and its judgment on the fair balance between leaseholder and freeholder interests should therefore not attract the court’s deference.

Edward Fitzgerald KC (for the John Lyon’s Charity) reiterated his argument that it should have been given an exemption. It was much closer to the National Trust than the government admitted. He noted that the Law Commission had considered treating charities separately. He also reiterated the points made about Lindheim and other cases being authority that full compensation was required.

Martin Westgate KC (for the Portal Trust) said that LAFRA was rushed and badly drafted legislation. The Portal Trust was also a social housing landlord and should have been given an exemption.

It does not appear that the judges intervened in any significant way during reply.

Entirely unsurprisingly Lord Justice Holgate reserved judgment at the end of the hearing. He and Mr. Justice Foxton will need to agree on what they find. In addition to four days of oral argument they have also been presented with many thousands of pages of written arguments, witness statements, expert reports, documents and legal authorities. They will need to weigh all of that materially carefully whilst writing their judgement.

Judgment will be handed down in writing at a later date. As usual it will circulated in draft in writing to the parties’ lawyers under embargo. They will have the opportunity to propose typographical and other corrections but not to make any further argument. Embargoed judgments are normally circulated to the parties about a week before they are publicly handed down.

The High Court’s summer vacation is between 1 August and 30 September. If judgment is not handed down before the end of term then it unlikely to come any earlier than September. It may be later in the year.

Also unsurprisingly there were indications that the freeholders plan to appeal if this decision goes against them. There was reference this afternoon to Cadogan / Grosvenor’s reserving the right to argue on appeal that courts should have the right to consider the content and quality of Parliamentary debate as an aid to interpreting LAFRA. The freeholders believe this favours them because they say Parliament gave no proper scrutiny to the damage being done to freeholders.

It is difficult to make any prediction about the outcome. Ultimately the freeholders have chosen to bring a hard challenge to win. They are asking the courts to make a declaration of incompatibility against core aspects of an Act of Parliament that has yet to be implemented. It would be a significant step for the courts to grant such a declaration.

My impression from looking at the freeholders’ lawyers’ faces on the video is they do not seem pleased with the way proceedings have gone. As any lawyer will tell you, there are hearings where the hearing seems to have gone well with sympathetic interventions from the judges only for the judgment to look completely different. Others go the opposite way. There are some where the signs are positive during the hearing and the judgment comes out favourably. We can never know what happens in judges’ minds after the hearing. We do not find out until it is too late.

What we can see in this case is that on all four days the judges expressed, sometimes quite forcefully, scepticism about critical parts of the freeholders’ case. They have doubted whether marriage value is actually a possession. They have doubted whether existing European Human Court of Rights case law on property cases is any guide to whether LAFRA breaches the freeholders’ human rights. Only yesterday they described LAFRA as dealing with “quintessentially political” questions best left to Parliament. There has been no sign of that scepticism diminishing during the hearing.

Most striking is that the freeholders have singularly failed to make good their oft cited claim to be the instruments of pension funds that will be damaged as a result of LAFRA. Repeatedly the court asked for information on LAFRA’s effect on pension liabilities. No answers came. And nor did any pension fund or representative investment group seek permission to intervene to make the point.

All of that may prove to be irrelevant. The judges may just have been pushing the freeholders’ barristers hard to see if their legal arguments work. They may not have been persuaded by the government’s case at all and saw no point in pressing its barristers further. Or it may have been just as it appeared.

In the meantime the freeholders have already achieved their objective of delaying the implementation of LAFRA. They have also delayed the consultation on which rates will apply under the new system of valuation, although other promised consultations have gone and are going ahead. We are already more than a year on from Parliament passing LAFRA with none of its material provisions yet in legal effect. Leaseholders are rightly angry at this.

Waiting is unfortunately probably the right choice. The alternative would have been to barrel on. That could potentially have left thousands of affected individuals in court having to face these arguments alone as the freeholders fought cases one by one. The freeholders would then have cherry picked the cases best able to make their legal points and dragged them through the appeals system. That is exactly what happened with the Leasehold Reform Act 1967, albeit that predated the power of the courts to grant declarations of incompatibility.

Worse yet, if the measures had been implemented the freeholders could have launched a far better prepared claim for vast amounts of taxpayers’ money in compensation. As it stands the worst the High Court can do is pass the matter back to Parliament and make a costs order in freeholders’ favour.

Delay is never welcome. Leaseholders who are unable to afford the current costs of extending are stuck, with each day bringing additional cost. But the approach the freeholders have adopted of challenging the principles of LAFRA means that if LAFRA survives the Court’s scrutiny then their room for manoeuvre for any later challenges will be extremely limited. The scope for picking fights with individuals is also limited if the courts find the general principles. Coupled with the changes to legal costs, it will also mean that freeholders who want to pick fights with individuals will, for once, have to pick up their own legal bills.

We will await the judgment with interest.