The determination as regards hope value is based upon a purposive construction of Schedules 6 and 13 of the 1993 Act that set out how the price payable is to be calculated. The Court of Appeal concluded that hope value and marriage value are directly linked and that hope value represents no more than the anticipation of future marriage value. The statute provides for the allocation of marriage value as a separate element of the price payable to the landlord. Accordingly, there is no scope to include hope value separately as part of the price as this would amount to double counting.

Degree of logic

Whether or not one agrees with their lordships’ reasoning, it has a degree of logic when applied to the provisions of Schedule 13 in relation to lease extensions. Difficulties arise in applying their approach in the context of collective claims as the provisions of Schedule 13 are similar, but not an exact match, to those of Schedule 6 in material respects. On the basis of this decision the effect of the amendments to the 1993 Act by the Commonhold and Leasehold Reform Act 2002 is that neither marriage value nor hope value is payable in respect of non-participating tenants. Their lordships considered this to be a matter of deliberate legislative policy. The anomalies that arise as a result of the interpretation of Schedule six are acknowledged in the decision but were clearly not sufficient to persuade their lordships to distinguish between the treatment of hope value in collective claims and claims for lease extensions.

Although none of the appeals before the Court of Appeal concerned the issue of whether hope value is payable in respect of an enfranchisement claim for a single house under section 9(1A) of the 1967 Act, adopting the same reasoning, their lordships considered that hope value could not be included in the price payable in addition to marriage value.

Reject the market

The deferment rate, as determined by the Lands Tribunal, remains unchanged by this decision at 4.75 per cent for houses and five per cent for flats. Had the Court of Appeal found that the Tribunal was wrong to reject the market evidence put before it in arriving at the formula for calculating the deferment rate, the appeals would have been remitted back to it for re-consideration.

The Court of Appeal endorsed the Lands Tribunal’s efforts to provide guidance to LVTs. It is to be hoped that LVTs will, in the light of this decision, follow the guidance in future cases. Consistency will assist the parties in concluding claims and keeping costs down. However, the Court of Appeal had one reservation about the Tribunal’s guidance; it was noted that this fails to distinguish expressly between the deferment rate that is to apply in the prime central London area and the rate that is to apply throughout the rest of London and the country. The apparent adoption of a universal rate by the Lands Tribunal has had a significant effect upon claims outside prime central London. Their lordships decided that there must be an implicit distinction and that even though the judgment of the Lands Tribunal must have been based on the evidence available to it, the way is open for parties to claims concerning property in other parts of the country to call further evidence that might justify a different deferment rate even if the rate adopted by the Tribunal is the starting point. The decision of the Court of Appeal may not be the last word on these issues.

Our experts say…

The long awaited decision of the appeal hearing held at the Court of Appeal in July lodged by Sportelli and others was handed down on 25th October 2007. There were a number of appeals, namely;
* whether hope value is payable on the enfranchisement of a leasehold house;
* whether hope value is payable on the enfranchisement of a block of flats; and,
* what the appropriate deferment rate should be for calculating the reversion.

All of the appeals were dismissed. This means that the decisions of the Lands Tribunal stand. Probably of most interest to both leaseholders and freeholders alike, is the deferment rate. This will remain unchanged at the rates set by the Lands Tribunal in September 2006, especially in prime central London.

The Court of Appeal was concerned that these rates, following the decision of the Lands Tribunal, should be applied across the whole country. The Court stated in its judgment that each case outside of the prime central London should be judged on the evidence presented and this shall be a matter for each side’s advisers to put forward in the LVT. However, the Sportelli rate of 5% for flats (under the Leasehold Reform, Housing and Urban Development Act 1993) and 4.75% for houses (under the Leasehold reform Act 1967) will be the starting point for all application to the LVT with regard to lease extensions and collective enfranchisements.

The other issues regarding hope value remain as before. There is no hope value payable in relation to collective enfranchisement although it is payable when enfranchising a leasehold house (that is, a single dwelling house) under the Leasehold Reform Act 1967. The formula set by the Lands Tribunal is to be used.

LEASE

The decision looks like a no score draw plus a slight glimmer of hope for lessees outside of central London.
Landlords lost on their challenge to have hope value included as a separate element of the valuation, and in addition the decision said it believed there should be no hope value for lease extensions of individual properties. Leaseholders lost on deferment rates. They remain at 4.75 per cent for houses and five per cent for flats, rates that have dramatically increased the cost of enfranchisement for many lessees.

As for LVTs the Court of Appeal supported the Lands Tribunal in trying to give a lead to LVTs on valuation, so giving more weight to the argument that the Sportelli decisions are some sort of precedent. But the Court of Appeal pointed out that the Lands Tribunal had heard evidence based only on the prime central London area but had then introduced arguments about whether that evidence applied elsewhere. So it concludes that it is possible to envisage other evidence being put forward that may result in different deferment rates outside central London.

The decision on the deferment rate came as no great surprise. However, the decision on hope value is disappointing. The Court of Appeal acknowledged that their judgement produces anomalies; however, having identified them, they then failed to provide any answers. The endorsement by the Court of Appeal of the role of the Lands Tribunal to promote consistent practice in land valuation matters is to be welcomed.

Damian Greenish, senior partner, Pemberton Greenish

As always, write to us at News on the Block, with your thoughts and questions about this decision. We are always pleased to receive your correspondence.