Leasehold Reform 2025 – The £4 Billion Battle

Transcript

Hi, I’m Ruban Selvanayagam, co-director at Property Solvers.

What happens when the rights of Millions of Leaseholders Collide with the Power of Britain’s Wealthiest Estates

On one side: homeowners fight for cheaper lease extensions, longer terms, and a fairer system.

On the other: freeholders argue that reforms strip away their property rights and billions in asset value.

This is the battle over leasehold reform — and in 2025, it’s literally on trial in the High Court.

In this video, I’ll explain what the Leasehold and Freehold Reform Act 2024 set out to do, why freeholders are challenging it, the hidden financial risks that could flip the whole thing upside down, and what it means for the future of property ownership in England and Wales.

Let’s dive in…

To understand why this Act is so important, let’s rewind.

Leasehold has existed in England and Wales for centuries. It’s essentially a long secured tenancy: you own the right to live in a property for a fixed term, but the land itself remains in the freeholder’s ownership. Unlike most of Europe — where outright ownership is the norm —  this dual system was developed in England and Wales.

Leasehold houses are relatively rare. Flats, however, almost always default to leasehold because blocks require a framework for shared management. The problem is that this system has grown far beyond its original purpose — bringing with it ground rents, service charges, and expensive rules around lease extensions or buying the freehold.

One especially controversial element is marriage value. Introduced under the 1993 Leasehold Reform Act, it essentially requires leaseholders with fewer than 80 years left to pay half of the uplift in their property’s value when extending the lease. Campaigners have long argued that this unfairly penalises homeowners, forcing them to pay thousands just to stay in their own homes.

Against this backdrop, the Leasehold and Freehold Reform Act or LAFRA was introduced in 2024 with bold promises to redress the balance.

The government presented LAFRA as the biggest overhaul of leasehold in decades.

Its three headline measures were:

• The Abolition of Marriage Value — removing the premium payable once a lease dropped below 80 years.
• Capping Ground Rent for Enfranchisement Calculations at 0.1% of the property’s value.
• Making Freeholders Pay Their Own Legal and Valuation Costs in most cases, rather than pushing those onto leaseholders.

The government estimated these changes would save leaseholders around £4 billion in total. That included £1.9 billion from abolishing marriage value, £1.2 billion from the ground rent cap, and around £600 million from the new costs regime.

On paper, a landmark shift. But the finer details matter. 

Some commentators argue that if you’ve got a flat with a 999-year lease alongside no or peppercorn ground rent, the technical difference is pretty small between leasehold and a share of freehold — where owners club together through a company — and full commonhold, which is where the lease effectively disappears and the building is managed directly by the flat owners.

The real battleground is the valuation method for existing lease extensions, and on that front, the government has left some huge questions unanswered.

And these have now sparked an important legal challenge.

In July 2025, six major freeholders launched a judicial review in the High Court. They included some of the most powerful estates in the country, such as the Grosvenor and Cadogan families, as well as investment funds and charities, namely The Portal Trust and the John Lyon’s Charity. Together, they control around 400,000 leasehold interests.

Their case centres on human rights. They argue that:

• Scrapping marriage value deprives them of a valuable property right.
• The ground rent cap unfairly strips them of income.
• And the costs regime places an unjustified burden on them.

They claim this amounts to a breach of Article 1 of Protocol 1 of the European Convention on Human Rights — the protection of property.

The government’s defence is that these are proportionate social policy measures. Marriage value, they say, is a statutory construct — not a natural possession — and Parliament is entitled to reform or abolish it.

The judges must apply the Bank Mellat Test, a four-stage framework for deciding whether interference with property rights is justified. They’ll consider whether the objective is important, whether the measures are rationally connected to it, whether less intrusive alternatives were available, and whether the overall balance is fair.

The High Court hearing was spread over three days, with each side setting out its arguments under close scrutiny from the judges…

On day one, the freeholders’ counsel argued that marriage value was a possession deserving of protection. 

To illustrate, they used an analogy of two antique vases. Separately, each is worth a certain amount, but put them together as a pair and their value increases. 

The freeholders argued that extending a lease works in the same way — the leaseholder’s flat and the freeholder’s reversion are “worth more together than apart,” so the uplift in value should be shared.

Lord Justice Holgate pushed back immediately, questioning whether that was true at all. He dismissed the analogy as misleading because, unlike a pair of vases, a lease is a diminishing asset. 

As time runs down, the leaseholder is under increasing pressure to extend, and the freeholder is in a much stronger bargaining position. In other words, the uplift in value isn’t a natural pairing like antique vases, but the product of an unequal market relationship — one that Parliament is entitled to reform.

On day two, freeholders claimed they were being denied “market value” compensation. The judges pushed back again, noting that the law only requires compensation to be “reasonably related” to market value, not identical.

Echoing the concerns raised the day before, Mr Justice Foxton suggested that the very concept of marriage value was itself a sign of the unequal bargaining power between leaseholders and freeholders. He also stressed that freeholders had built commercial businesses around this statutory framework and therefore always ran the risk that Parliament could change the rules.

By day three, judicial patience was wearing thin. Holgate became visibly frustrated with repetitive arguments, saying he had heard the same points “umpteen times before.”

The mood shifted when the government’s counsel, Sir James Eadie KC, began presenting. He argued the reforms were not an expropriation but a control on use, and that Parliament was entitled to legislate to correct market imbalance. The judges engaged seriously, recognising this as a “quintessentially political” matter where wide discretion is given to lawmakers.

While the case has dominated headlines, the wider debate beyond the courtroom is just as important.

Some argue that optimism for full reform is fading fast. Government ministers themselves admit the process is complex, and doubts remain over whether leasehold will ever be fully abolished or commonhold introduced on a large scale.

Others point out that the immediate issue for most leaseholders is not the principle of commonhold, but the practical cost of extending a lease. Until the new valuation formulas are clarified, many homeowners remain in limbo.

Meanwhile, some reforms are already in force. Since January 2025, leaseholders no longer need to wait two years before starting an enfranchisement claim. In other words, the old two-year ownership rule has been abolished, making it possible to extend a lease or join a freehold purchase as soon as you buy the property.

That’s a meaningful change — whether for a new flat owner who wants to secure a longer lease straight away, or for residents in a block who can now join forces immediately to buy out the freehold and take control of how their building is managed.

Campaigners, though, argue this isn’t enough. They want more transparency in service charges, caps on insurance commissions, and an end to the harsh forfeiture rules that allow freeholders to take back entire properties over relatively small arrears. They describe the current system as “feudal” and insist Parliament, not the courts, should have the final say.

But there’s also a hidden economic risk at play…

Even if the government wins the judicial review, another issue looms much larger: deferment and capitalisation rates.

These are the rates set by the government to calculate the present value of a property (deferment) and its ground rents (capitalisation) in enfranchisement cases. Even small shifts can have huge impacts.

Economist Dr Alexander Hamilton’s modelling, used in the government’s own impact assessments, breaks it down:

• Only about 14% of leaseholders actually have leases under 80 years, the group that benefits directly from abolishing marriage value.
• Around 52% have leases between 80 and 150 years. For them, marriage value isn’t relevant yet — what matters is deferment and capitalisation.
• The rest have very long leases, where changes make little immediate difference.

Here’s why it matters. The deferment rate is a bit like the interest rate you use to work out what money in the future is worth today.

If the rate is higher — say 5% — future money looks less valuable now. That means the freeholder’s right to get the flat back in 90 years doesn’t look worth very much, so the lease extension premium stays low.

If the rate is lower — say 3.5% — future money looks more valuable today. Suddenly that same right to get the flat back is worth a lot more, and leaseholders have to pay more to buy it out.

Alongside this is the capitalisation rate, which works on the freeholder’s ground rent income. Think of it as the yield used to convert annual ground rent into a lump sum. A higher rate makes that income stream look less valuable, so premiums are lower. A lower rate makes it look more valuable, so premiums go up.

That’s why even small shifts in these rates can flip the numbers completely. At 5%, the government reckons abolishing marriage value saves leaseholders around £1.9 billion overall. But if the deferment rate drops to 3.5% — which freeholders are lobbying for — those savings collapse to just £74 million. In fact, the overall effect could mean an extra £1.6 to £3.8 billion flowing the other way — from leaseholders back to freeholders.

Take a flat worth £250,000 with 90 years left. At 5%, extending the lease might cost about £8,000. Drop the rate to 3.5%, and the premium could more than double to £18,000. Multiply that across hundreds of thousands of flats, and the stakes are huge.

This is why campaigners worry that even if the government wins in court, it might still adjust these rates to cushion freeholders — leaving most leaseholders worse off.

But behind all this are real people…

Uncertainty has already significantly slowed the market. With the key reforms on hold, buyers, sellers, and lenders don’t know where they stand. A survey in July 2025 found nearly 60% of leaseholders are struggling to sell their homes.

And then there are the personal stories. Many leaseholders say they were never properly warned by their solicitors about the implications of a short lease.

One single mother was quoted £37,000 to extend her lease five years ago. That figure has since risen to £115,000. She now feels trapped in a property she can’t extend and can’t sell. Another leaseholder recently described being “held to ransom” in his own home as service charges and ground rents escalate beyond affordability.

These cases show that behind the legal arguments and billions of pounds in calculations, the human cost is very real.

So what happens next?

The High Court has reserved judgment, expected later in 2025. Broadly, there are three possible outcomes:

• The reforms are upheld in full. Leaseholders would celebrate, but the focus would immediately shift to the deferment and capitalisation rates.
• The freeholders win partial concessions. Perhaps on the costs regime or the ground rent cap, softening the blow but leaving the core reforms intact.
• The reforms are struck down. Parliament would have to go back to the drawing board, delaying implementation further and prolonging market uncertainty.

Reports from the hearing suggested the judges were sceptical of the freeholders’ arguments, which gives some cause for optimism. But nothing is guaranteed. Freeholders’ legal teams are extremely well-resourced and could continue to apply pressure, either through appeals or by reframing arguments around property rights. In other words, the momentum can still shift.

For leaseholders with short leases — say under 80 or 85 years — this uncertainty creates a real dilemma. Do you hold off in the hope that reforms make extensions cheaper, or do you act now before costs rise further?

Unfortunately, there’s no one-size-fits-all answer. 

If you need to sell in the near future, waiting could be risky: buyers and lenders remain cautious, and any negative shift in deferment rates could make extensions more expensive. On the other hand, if you can afford to wait and your circumstances allow, there is a chance the reforms will eventually improve affordability.

Even if the government wins decisively, the battle won’t be over. The technical rates — deferment and capitalisation as mentioned before  — will ultimately decide whether this Act delivers savings for homeowners or perversely makes things worse for the majority.

To conclude, the battle for leasehold reform is far from over. The High Court’s decision will be pivotal, but the bigger test may come later, when the government decides how to implement the details.

Only a small minority — around 14% — stand to benefit directly from abolishing marriage value. For the majority, the real question is whether the economics of enfranchisement are tilted in their favour, or back towards freeholders.

If you’re a leaseholder weighing up whether to extend or sell, here’s a simple framework to think about:

• First, the Timeline: Do you need to sell within the next 12–18 months? If yes, waiting is riskier.
• Next is the Lease Length: Under 80 years means you’re already in marriage value territory. Between 80–90 years, costs can climb quickly if rates shift. For leases in the 80–150 year range, marriage value isn’t the issue — but deferment and capitalisation rates will dictate whether extensions get cheaper or more expensive under reform.
• Then there are Market Conditions: Buyers and lenders remain cautious. Even with reform, appetite for short leases may not bounce back immediately.
• Then there are Personal Finances: If you can cover the extension now and it unlocks a sale, that certainty may outweigh the gamble of waiting.
• Finally, there’s Your Own Risk Appetite: If you can afford to wait, reforms could still make things fairer — but the outcome isn’t guaranteed, especially if rates move against leaseholders.

For now, leaseholders remain caught in limbo — trapped between political promises, legal battles, and market uncertainty.

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