Leasehold and Freehold Reform Act: Freeholders Vs the Government 2025 Court Case

The High Court became the battleground for a significant judicial review as a major coalition of freeholders launched a legal challenge against the Leasehold and Freehold Reform Act 2024 (LAFRA). This legal clash has far-reaching implications for the UK's leaseholders, pitting the government's reform agenda against claims of human rights infringements and massive financial losses.

The Heart of the Freeholders' Challenge: Human Rights

The freeholders' argument centers around the assertion that LAFRA violates their human rights, specifically their right to peaceful enjoyment of private property under Article 1 of Protocol 1 to the European Convention on Human Rights (ECHR). They claim the Act amounts to "mass expropriation" of their assets without adequate compensation, potentially leading to hundreds of millions of pounds in losses.

Their challenge focuses on three key provisions within LAFRA:

• Abolition of "marriage value": The removal of the requirement for leaseholders with leases of less than 80 years to pay 50% of the "marriage value" (the uplift in value when leasehold and freehold interests merge) to the freeholder.
• Ground rent cap: The exclusion of ground rents exceeding 0.1% of the freehold vacant possession value from the calculation of the price for a lease extension.
• Costs shifting: The removal of the requirement for leaseholders to pay the freeholder's legal costs for an extension.

The freeholders argue that there's a lack of justification for such significant losses and no fair balance has been struck between their interests and those of leaseholders. They also raised concerns about the Law Commission's foundational work, suggesting it failed to differentiate between various types of property owners (eg buy to let landlords versus residents).

The Government's Defence: Proportionality and Public Interest

The government, in response, argued that LAFRA aims to bring leasehold enfranchisement in line with established market value principles, restoring the original intent of earlier legislation. Crucially, they seek to demonstrate that the Act's provisions meet the Bank Mellat test, a four-part framework used by UK courts to assess whether a perceived interference with a protected human right is justified.

Understanding the Bank Mellat Test:

This legal test, stemming from the Supreme Court case of Bank Mellat v HM Treasury (No 2) [2013], asks four questions:

1. Is the objective sufficiently important? (Is the government's aim legitimate and serious enough to justify limiting a human right?)
2. Is there a rational connection? (Is there a logical link between the measure and its intended outcome?)
3. Are there less intrusive alternatives? (Could the objective have been achieved with less severe impact on the protected right?)
4. Is there a fair balance? (Does the severity of the measure's effects on individuals' rights outweigh the importance of the objective it seeks to achieve?)

The government's legal team wants to show that LAFRA's objectives - such as simplifying the property system and reducing costs for leaseholders - are sufficiently important, rationally connected to the Act's provisions, and proportionate, even if they result in wealth redistribution.

What Happened and What's Next?

The High Court has granted permission for the freeholders' judicial review claims to proceed, with a vast amount more written evidence yet to be fully considered. The outcome however, is far from certain.

The immediate consequence is a likely significant delay in the full implementation of LAFRA's more contentious valuation reforms. While some aspects of the Act, such as the removal of the two-year ownership rule for lease extensions, have already taken effect, major progress on the new valuation methodology is now in limbo, at least for some months, but potentially for years if appeals follow.

The ultimate resolution of this battle remains uncertain. If the freeholders succeed, parts of LAFRA could be withdrawn or require significant redrafting by Parliament. With many leaseholders having already delayed decisions to sell or extend their lease while waiting for LAFRA to come into full-force, now may be a time that they reevaluate their options.

If you want to talk through your situation and the potential implications for your property then get in touch.