Cadogan v Pitts and another

This appeal concerned whether "hope value" may be included in statutory valuations under enactments governing leasehold enfranchisement and lease extension. The court analysed the distinction between "marriage value" (the uplift when leasehold and freehold are reunited) and "hope value" (the additional price a purchaser might pay in the expectation of a future realisation of marriage value).

Key statutory provisions considered were section 9 of the Leasehold Reform Act 1967 (and subsections introduced by later Acts) and paragraphs 3 and 4 of Schedule 6 and Schedule 13 to the Leasehold Reform, Housing and Urban Development Act 1993, as amended by the Housing Act 1996 and the Commonhold and Leasehold Reform Act 2002. The House held that hope value is excluded when the statutory valuation hypothesis excludes tenants from the market for the relevant interest (section 9(1) and Schedule 13 para 3), and that, where marriage value is taken into account by statute (section 9(1A) and related provisions), hope value cannot be added in order to avoid double counting. By contrast, the House held that paragraph 3 of Schedule 6 permits hope value to be taken into account to the extent it relates to the prospect of non-participating tenants negotiating new leases of their flats (but not in respect of participating tenants, whose position is dealt with by paragraph 4).

Background and parties: These consolidated appeals arose from valuation disputes between landlords (Earl Cadogan and Cadogan Estates Ltd) and tenants (including Pitts and Wang, Atlantic Telecasters Ltd, Sportelli, Grandeden and 27/29 Sloane Gardens) about the sums payable on enfranchisement or lease extension under the Leasehold Reform Acts. The tenants had invoked rights under Chapter I (collective enfranchisement) and Chapter II (individual lease extension) of the Leasehold Reform, Housing and Urban Development Act 1993 and under the Leasehold Reform Act 1967. The question was whether a component of "hope value" should be included in the valuation of the landlord's interest.

Procedural history: Disputes were determined by Leasehold Valuation Tribunals and the Lands Tribunal; the Lands Tribunal gave a lead decision (reported at [2007] 1 EGLR 153 and [2007] 3 EGLR 86 for related matters). The Court of Appeal ([2007] EWCA Civ 1042 and [2007] EWCA Civ 1280) sided with the tenants and disallowed hope value in the valuations. The landlords appealed to the House of Lords.

Nature of relief sought: The landlords sought to have hope value recognised as a lawful component of the valuation of the freeholder's or landlord's interest, so as to increase the price payable on enfranchisement or lease extension.

Issues framed:

• Whether the statutory valuation assumptions that exclude tenants from the market (section 9(1) and Schedule 13 para 3) also exclude hope value.
• Whether, where marriage value is expressly taken into account or shared by statute (section 9(1A) and section 9(1D)), any hope value is subsumed and therefore excluded from addition.
• Whether paragraph 3 of Schedule 6 permits hope value to be included in collective enfranchisement valuations, and if so whether that extends to participating or non-participating tenants.
• Whether recognition of hope value would raise human rights issues under Article 1 of Protocol 1 (as argued by landlords).

Court's reasoning and outcome: The House adopted a detailed statutory-construction and valuation analysis. It treated marriage value and hope value as distinct concepts but explained that they interact in valuation practice and that inclusion of both can lead to double counting. By majority the House held: hope value is excluded under section 9(1) and Schedule 13 para 3 where tenants are assumed not to be in the market; under section 9(1A) hope value is also effectively excluded because marriage value (and the statutory apportionment) subsumes any proper allowance for hope value; however paragraph 3 of Schedule 6 (collective enfranchisement) permits hope value to be taken into account to the extent that it is attributable to the prospect of non-participating tenants negotiating new leases of their flats (but not in respect of participating tenants, whose uplift is addressed by paragraph 4). The House therefore dismissed some appeals and allowed others in part. The majority also concluded there was no need to resolve the human rights point on the basis of Convention interpretation.

The appeals were allowed in part. The House dismissed the landlords' appeals in the Pitts & Wang and Atlantic Telecasters cases (valuation under section 9(1A)/section 9 framework) and in the Sportelli case (Schedule 13), holding that hope value is excluded in those statutory valuation hypotheses (and, where marriage value is statutorily taken into account, hope value would amount to impermissible double counting). The House allowed the landlords' appeals in Grandeden and 27/29 Sloane Gardens to the extent that paragraph 3 of Schedule 6 permits hope value to be taken into account in respect of the prospect of non-participating tenants negotiating new leases of their flats, but not in respect of participating tenants whose uplift is dealt with by paragraph 4. The reasoning was founded on purposive construction of the statutory valuation assumptions and on avoiding double counting between marriage value and hope value.

Appeals from decisions of Leasehold Valuation Tribunals and the Lands Tribunal (see LRA/79/2006 and LON/LVT/LRA references). The consolidated appeals were heard in the Court of Appeal (reported variously, including [2007] EWCA Civ 1042 and [2007] EWCA Civ 1280), which upheld the tenants; the landlords appealed to the House of Lords ([2008] UKHL 71), which delivered the mixed outcome set out above.