ARC Time Freehold Income Authorised Fund & Ors, R (on the application of) v The Secretary of State for Housing, Communities and Local Government

The court upheld reforms reducing compensation payable to landlords when leaseholders enfranchise. The measures pursued legitimate social and economic objectives: remedying the wasting-asset problem and the structural imbalance between landlords and tenants, while simplifying enfranchisement. A broad margin of appreciation applied because the measures formed part of general housing and leasehold reform, rather than a distinct expropriation.

Compensation remains reasonably related to market value where it preserves reversion value and term value, subject to the 0.1% ground-rent cap, while excluding marriage value and landlords’ non-litigation costs. The reforms therefore struck a fair balance under Article 1 of the First Protocol, individually and cumulatively. No separate exception was required for charities, commercial leaseholders or non-owner-occupiers.

Six groups of landlords sought declarations under section 4 of the Human Rights Act 1998 that three reforms in the Leasehold and Freehold Reform Act 2024 were incompatible with Article 1 of the First Protocol to the ECHR.

The challenged measures were a 0.1% cap on ground rent used in calculating term value, removal of marriage value from enfranchisement premiums, and abolition of the tenant’s general liability for the landlord’s non-litigation costs. The claimants also challenged the cumulative effect of the reforms and their application without exceptions for charities or certain commercial arrangements. The central issue was whether the reforms struck a fair and proportionate balance between the public interest and landlords’ property rights.

1. Claims dismissed. The Ground Rent Cap, Marriage Value Reform and Costs Recovery Reform were compatible with Article 1 of the First Protocol, individually and cumulatively.
2. The legislation pursued legitimate aims: correcting the wasting-asset problem and the resulting imbalance between landlords and tenants, improving security and control for leaseholders, and making enfranchisement simpler and cheaper. Those aims applied to leaseholders generally, not only owner-occupiers or financially vulnerable tenants.
3. A broad margin of appreciation applied. The reforms were general socio-economic measures concerning housing and property relations, not distinct expropriations for particular projects. The availability of less intrusive alternatives did not itself establish disproportionality.
4. The 0.1% Ground Rent Cap was rationally connected to the legislative aims. It addressed ground rents capable of impairing saleability or mortgageability. It regulated the compensation calculation and did not alter the landlord’s contractual entitlement to receive rent before or after enfranchisement.
5. Marriage value was a valuation concept generated by the wasting nature of the leasehold interest and the tenant’s need to enfranchise. It was not an independent pre-existing asset of the landlord. Excluding it, while preserving reversion value and term value, produced compensation reasonably related to the market value of the interest taken.
6. The abolition of non-litigation costs was justified because open-market transactions ordinarily require each party to bear its own transaction costs. Requiring tenants to pay landlords’ costs contributed to the imbalance arising from the wasting asset problem. The statutory exceptions for failed, withdrawn and low-value claims preserved appropriate safeguards.
7. The absence of exceptions for charities, commercial investors or the Portal Trust did not violate Article 1 of the First Protocol or Article 14. The relevant unfairness was inherent in the leasehold structure and did not depend on the identity or charitable purposes of the landlord.
8. The cumulative effect of the measures did not alter the conclusion. Each reform addressed a distinct aspect of the identified imbalance and the resulting compensation remained reasonably related to market value.