Landlord Not Entitled to Hope Value

The House of Lords has denied an appeal by the Earl of Cadogan and others against a well reported ruling in which landlords were denied the right to claim an element of ‘hope value’ when their tenants bought out their leaseholds under the right to buy legislation.

Strictly, the judgment is not all good news for tenants. The Lords did rule that hope value is not payable in claims for the freehold under the Leasehold Reform Act 1967 or in lease extension claims or for participating tenants under the Leasehold Reform, Housing and Urban Development Act 1993.

However, the Lords also decided that hope value is to be taken into account in the valuation in so far as it is attributable to the possibility of non-participating tenants seeking new leases of their own flats. A non-participating tenant is a tenant who is not part of a collective scheme for obtaining enfranchisement of a leasehold (i.e. where the tenants of a block of flats decide collectively to purchase the freehold).

The argument turned on how the ‘marriage value’ (the amount by which the freehold value of the property after purchase by the tenant exceeds the landlord’s value of the property as an investment property plus the tenant’s value of his or her lease) should be dealt with. The problem, as identified by Lord Hope of Craighead, is that ‘there are three distinct elements in the valuation of the freehold interest of premises which are subject to a long lease: the right to receive the ground rent, the right to vacant possession at the term of the lease and the option, or at least the potential, to deal early with the tenant and thus release the marriage value which will be realised at the term before the term arrives. It is the third element which is known colloquially as the hope value.’ This value can differ considerably from the common concept of ‘open market value’, yet ‘none of the statutory provisions that are in issue in this case refers to hope value’.

It remains to be seen to what extent the hope value will be taken into account relating to the renewals of leases by non-participating tenants.

Earl Cadogan and Another v Pitts and Another. Earl Cadogan and Others v Sportelli and Another. [2008] UKHL 71. See http://www.publications.parliament.uk/pa/ld200809/ldjudgmt/jd081210/earl-2.htm.

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