An update on the challenges made against the Leasehold and Freehold Reform Act 2024

• 20 November 2024
• Views

Following the passing of the Leasehold and Freehold Reform Act (“LAFRA”) in May 2024, a total of 7 judicial review claims have now been made challenging its provisions.  They each argue that the provisions of LAFRA are contrary to Article 1 of Protocol 1 (“A1P1”) to the European Convention on Human Rights, and amount to an expropriation of the value of each claimants’ property without any or adequate compensation. 

The following 4 claimants have had their claims stayed (“the Stayed Claims”):

             1.  Abacus Land 1 (HoldCo) Limited and Others

             2.  Annington Property Limited and Others

             3.  Arc Time Freehold Income Authorised Fund and Others

             4.  Cadogan Group Limited and Others

The remaining 3 claimants are (“the Unstayed Claims”): 

             5.  The Trustees of the Portal Trust

             6.  John Lyon’s Charity

             7.  Wallace Partnership Group Ltd and Others

On 30 October 2024, a hearing took place in the Royal Courts of Justice, to decide (i) whether the Secretary of States’ applications to stay the Unstayed Claims should be granted and (ii) (assuming these applications were refused) whether the stays imposed in the Stayed Claims should be lifted, so as to allow the cases to proceed.

The Secretary of States’ arguments included…

… an assertion that the requested stays were both proportionate and necessary.  

They reminded the court that the government is in the process of drafting secondary legislation, which will include prescribed deferment and capitalisation rates, and argued that a small change to either or both could have a significant impact on the premium payable on enfranchisement, and therefore the overall balance between freeholders’ and leaseholders’ interests. It was their case that, without having sight of this secondary legislation (and the legislative scheme as a whole), it was not possible for the court to assess whether LAFRA complies with A1P1.

Further, and in relation to the Unstayed Claims, the Secretary of State submitted that the alleged impact of LAFRA was either exaggerated or non-existent. 

The position of the claimants in the Unstayed Claims was…

…that that there was no proper basis for a stay, asserting that LAFRA was already having a real effect on them and that they should not have to endure this for an indefinite period.

Various submissions were put forward to support this, including the following:

• that there is no rule that requires the court to stay so-called ab ante claims;
• that the prescribed rates have to reflect market value, so secondary legislation could not be used lawfully to compensate freeholders or mitigate the impact of LAFRA on them;
• that any financial benefits that could accrue to freeholders are irrelevant to the proportionality of LAFRA; it is for the Secretary of States to justify the public interest need for a “pound for pound” transfer of assets from freeholders to leaseholders;
• that the impact of LAFRA (once commenced) would be felt over time, and the court could not rely on the initial rates to conclude that LAFRA is compatible with A1P1: any mitigation or compensation supposedly achieved now could be reversed again in the future;
• that the effect of a stay would be to determine the substantive applications for judicial review; and
• that it would be antithetical to the principle of good administration to stay clearly formulated claims challenging primary legislation until after the commencing regulations had been made.

The position of the claimants in the Stayed Claims was…

… more neutral – some agreeing with the Secretary of States’ view that, without the secondary legislation, there was presently no reliable way of measuring the impact of LAFRA and others submitting that, should the Unstayed Claims be allowed to proceed, then all the claims ought to proceed together.

The court’s decision

It was held that the Unstayed Claims should proceed at least to the stage of determining whether permission to apply for judicial review should be given – and that the stay should be lifted for the Stayed Claims also.

The main reasons for this were as follows:

• there is no jurisdictional reason why the court can’t entertain a challenge seeking relief in the form of a declaration of incompatibility in respect of primary legislation that has received Royal Assent but has not yet been commenced;
• the legislation may already be exposing the claimants to potentially considerable financial losses; 
• it is likely to take many months, if not years, for the secondary legislation to be passed; and
• even if the claimants are successful in establishing the incompatibility of the provisions, the remedy that the law affords them is not damages but a declaration of incompatibility.  There will therefore be no right for them to recover losses incurred before the remedial order is made, which makes it very important from the claimants’ perspective that, if a declaration of incompatibility is to be made, it should be made as soon as possible.

The parties have been directed to file an agreed draft order containing directions leading to a permission hearing to take place in the first week of January.

At the close of the hearing, I refused the Defendant's applications and directed the parties to file an agreed draft order containing directions leading to a permission hearing in the first week of the Hilary Term.

https://www.bailii.org/ew/cases/EWHC/Admin/2024/2753.html