Freeholders Sue to Block the Leasehold and Freehold Reform Act 2024

Property investors will be watching closely the progress of a judicial review claim brought by a group of property owners against the Secretary of State for Housing, Communities and Local Government, which is (in effect) a challenge to the Leasehold and Freehold Reform Act 2024 (the “Act”) and which was heard from 15-18 July 2025. Judgment is not expected before October 2025.

The case arises from the long-awaited reform of leasehold law as it is now enshrined in the Act. Much of the public interest in this area concerns what might be called the “consumer” interest in the selling of new homes on long leases where the developer retains the freehold interest and where there has been disquiet about the quality of advice given, often by solicitors paid by the developer, to purchasers who were apparently ignorant of the effect of onerous ground rent clauses. However, there are aspects to the legislation and the judicial review claim which have much broader relevance to investors in property.

While significant parts of the legislation have yet to be brought into force, the principal points of concern to investors, and which are in contention in the claim, are that the Act:-

(a) prohibits the grant or assignment of certain long residential leases of houses (thus addressing the main point of public concern noted above);

(b) makes significant changes to a variety of aspects of the leasehold enfranchisement and lease extension regimes (including the price payable); and

(c) provides a right for long leaseholders to replace their contractual ground rent with a peppercorn rent (on payment of a premium).

The combined effect of these changes will likely be to devalue (perhaps considerably) a number of freehold interests subject to long leasehold interests. Accordingly, the great London estates and a charity who comprise the most well-known claimants in the claim seek (in short) to establish that enforcing the provisions of the Act would constitute a breach of Article 1 of Protocol 1 to the European Convention of Human Rights, which guarantees to “Every natural or legal person … the peaceful enjoyment of his possessions.” It is also clearly established law that, where any person is deprived of property, compensation must be paid. The claimants argue that they are being deprived of their existing proprietary rights and that the Act does not offer them fair compensation for their loss.

No doubt there will be little sympathy at large for claimants such as the Duke of Westminster and Earl Cadogan. The less well-known claimants in the claim, however, are pension funds, which requires some explanation.

Ground rents are – or were – very reliable investments. While the amounts payable are not substantial (and bear little or no relation to commercial rents), leaseholders know they must pay their ground rent or risk losing their homes. Better still from the freehold owner’s perspective, the mortgage providers for long residential leases will step in and pay the ground rent if the leaseholder does not in order to protect their security. In short, this is a very safe income stream which is always attractive to a certain kind of long-term investor who requires reliable income.

Accordingly, a number of pension funds – who are precisely long-term investors who value reliable income streams – have bought freeholds with long residential leasehold interests, have loaned considerable sums to freeholders on what appeared to be very strong security or have even simply purchased the right to collect ground rents from freeholders.

Better still from their perspective, long leaseholders who wish to extend the terms of their leases or “enfranchise” them and thus buy out the freehold interest altogether must pay to do so according to highly technical but well-known statutory formulas on which expert advice is readily available and which reflect (to a certain extent) commercial and market realities.

All of this will be changed by the Act. A number of pension industry bodies have suggested their losses will be measured in billions of pounds.

The outcome of the claim and any subsequent legislation will give a clear indication to property investors of the direction of travel in this market.

Simon Winter, Partner

Postscript

Since this article was written and first published, judgment has been given. Holgate LJ and Foxton J set out – in an exemplary judgement of over 160 pages [2025] EWHC 2751 (Admin) – the legislative history of leasehold enfranchisement and the effect of Article 1 Protocol 1 of the European Convention. The Secretary of State was successful. At the time of writing this postscript, it is unclear whether the unsuccessful claimants will appeal or take matters further in Strasbourg.