Leasehold enfranchisement – Leasehold Reform Act 1967 – Hope value – Valuation under section 9(1A) – Whether permissible to include hope value in valuation of landlord’s interest – Application of Earl Cadogan v Sportelli
These were two appeals from decisions of the London Leasehold Valuation Tribunal (LVT) concerning the price payable by the tenant on two leasehold enfranchisement claims under section 9(1A) of the Leasehold Reform Act 1967. In each case, the landlord had contended that, in valuing its interest for that purpose, an element of hope value should be included to reflect the option that it would otherwise have had to sell the freehold or a leasehold extension to the tenant in the future.
In the first decision, the LVT made no express reference to hope value; in the second, hope value was expressly excluded. In conjoined appeals, by the tenant in the first case and the landlord in the second, a preliminary issue was tried as to whether it was open to the landlords, as a matter of law, to contend for hope value as an element in the valuation of their interest. The landlords relied upon Earl Cadogan v Sportelli [2007] 1 EGLR 153, in which, although hope value had been excluded in four of the five appeals under consideration, it had been allowed in the one appeal dealing with a section 9(1A) enfranchisement. The landlords submitted that the correct approach was to incorporate hope value when calculating the element of the enfranchisement price attributable to marriage value, under section 9(1D), by: (i) first determining the sum obtainable on the open market for the freehold and leasehold interests, with the tenant excluded as a potential purchaser of the freehold interest, and with hope value included; (ii) then calculating the marriage value as the difference between that sum and the value of the freehold in possession; and (iii) attributing that difference between the landlord and the tenant.
Held: The preliminary issue was determined in favour of the tenants. Section 9(1D), which prescribes a 50:50 split of the marriage value between landlord and tenant, must be taken as referring to a marriage value derived from a valuation of the freehold and leasehold interests that omits entirely the prospect of their coalescence. The provision for a 50:50 split, when there is no established valuation practice in respect of hope value, suggests a marriage value derived without regard to hope value. Accordingly, hope value cannot, as a matter of law, be included as an element in the valuation of the landlord’s interest. The decision on that point in Sportelli, which was reached on an uncontested section 9(1A) appeal in the absence of any contention to the contrary, should be regarded as given per incuriam.
Andrew Walker (instructed by Bircham Dyson Bell) appeared for the appellants in the first appeal; Philip Rainey and Kenneth Munro (instructed by Pemberton Greenish) appeared for Earl Cadogan in both appeals; Edwin Johnson QC (instructed by Terence St J Millett) represented the respondent in the second appeal.
Note: The landlord’s appeal against the decision of the Lands Tribunal was dismissed by consent, following the indication by the Court of Appeal in Sportelli that it agreed with the tribunal’s approach to valuation unders section 9(1A) of the 1967 Act.
Sally Dobson, barrister
