Sportelli goes to the lords

Is the Vesuvius of the Leasehold Enfranchisement World about to erupt again?

On 21st April 2008, Leave to Appeal to the House of Lords was granted in the Earl of Cadogan v Sportelli case.

Leave to Appeal in the case has been granted in respect of “Hope Value” only.

What is Hope Value?

To understand the concept of “Hope Value”, consideration must first be given to another familiar valuation concept : “marriage value”.

When a leaseholder is buying the freehold or extending their lease, he has to pay something for the value of the leasehold and freehold interests coming together i.e. the effective merging or “marrying” together or these two interests.

It is presumed the only person who will ever want to bring the freehold and leasehold interests together is the leaseholder. The leaseholder is therefore usually wiling to offer a higher price than others may do and “hope value2 is that “overbid” i.e. the additional payment a leaseholder would make in order to ensure that they, and no-one else, gets the freehold.

There have been different Lands Tribunal decisions at different stages which have caused amendments to be made to the relevant statutory provisions in this area of law. The Commonhold and Leasehold Reform Act of 2002 also made further amendments – but these amendments have been unclear and it was difficult to come to a firm view as to whether hope value should or should not be included as a part of leasehold valuations. It was against this background that Sportelli reached the Lands Tribunal and the Court of Appeal

The Land Tribunal accepted that something called “hope value” could be identified and quite possibly a price could be attached to the value of a tenant buying the property to exclude all others. However, the Lands Tribunal determined that a proper reading of the current relevant legislation meant that you could not take it into account. Hope Value, said the Lands Tribunal, should be excluded for leasehold valuations.

The Court of Appeal agreed with the Lands Tribunal that hope value had to be excluded. They reasoning was however different.

The Court of Appeal studied in detail the construction of the various statutes. In the end it decided that for lease extensions, the Leasehold Reform Housing and Urban Development Act 1993 makes it clear Landlords are entitled to 50% of the marriage value. Therefore there cannot be an additional hope value on top of that, as that would involve double counting.

The Court of Appeal said that all hope value is, is the possibility of future marriage value hence, where the percentage is fixed, it must be excluded.

Collective Enfranchisement