Earl Cadogan (Appellant) v Pitts and another (Respondents) and one other action Earl Cadogan and others (Appellants) v Sportelli and another (Respondents) and two other actions

Where a statutory leasehold valuation assumes that the tenant is not buying or seeking to buy, the assumption excludes both marriage value and hope value arising from a possible later purchase.

Where the valuation already includes the landlord’s share of marriage value, hope value cannot ordinarily be added. The two elements depend on inconsistent assumptions about whether the tenant is in the market.

On collective enfranchisement under Schedule 6 to the Leasehold Reform, Housing and Urban Development Act 1993, however, the freeholder may claim hope value attributable to the possibility that non-participating tenants will negotiate new leases. That value is not included in the statutory marriage value relating to participating tenants. Its existence and amount remain questions for the valuation tribunal.

Five landlords’ appeals concerned the price payable when residential tenants acquired freeholds or new leases under the Leasehold Reform Act 1967 and the Leasehold Reform, Housing and Urban Development Act 1993. The disputed element was “hope value”: the additional market value attributable to the possibility of a future transaction releasing marriage value.

Three cases concerned an individual lease extension or the enfranchisement of houses. Two concerned collective enfranchisement of blocks containing flats held by non-participating tenants. The Lands Tribunal and Court of Appeal had held that hope value was unavailable as a matter of law. The relevant Court of Appeal decisions were [2007] EWCA Civ 1042 and [2007] EWCA Civ 1280.

The central questions were whether statutory assumptions excluding tenants from the hypothetical market also excluded hope value, and whether hope value was already subsumed within the statutory allowance for marriage value.

1. Disposition. Lord Neuberger delivered the leading speech. Lord Hope, Lord Walker and Lord Mance agreed with the resulting orders. The appeals in Sportelli, Pitts and Wang and Atlantic Telecasters were dismissed. By a majority of four to one, the appeals in Grandeden and 27/29 Sloane Gardens were allowed to the extent that hope value attributable to non-participating tenants could be claimed. Lord Hoffmann dissented on that issue and would have dismissed every appeal.

2. Per Lord Neuberger, with the other Law Lords agreeing, the assumption in section 9(1) of the Leasehold Reform Act 1967 that the tenant was not buying or seeking to buy excluded both present marriage value and hope value based on a future purchase. The words applied to the future as well as the valuation date. A contrary construction would irrationally disregard a tenant’s bid on the valuation date while recognising an identical bid immediately afterwards. The equivalent language in paragraph 3 of Schedule 13 to the Leasehold Reform, Housing and Urban Development Act 1993 had the same effect.

3. Per Lord Neuberger, hope value could not be added where the price already included a share of marriage value under section 9(1A) of the 1967 Act. Hope value assumes that the tenant is outside the market but may enter it later. Marriage value assumes that the tenant’s special interest affects the present price. Using both assumptions would double count the same underlying potential. The same reasoning excluded hope value relating to participating tenants under Schedule 6, because their marriage value was already included under paragraph 4.

4. Per Lord Neuberger and Lord Walker, Schedule 6 nevertheless permitted hope value attributable to the possibility that non-participating tenants might negotiate new leases of their flats. Such value passed with the freehold to the nominee purchaser but was not included in paragraph 4 marriage value. Paragraph 3(1)(b), including its treatment of notices under section 42, supported a distinction between disregarded statutory rights and possible freely negotiated transactions. Lord Hope and Lord Mance agreed.

5. Lord Hoffmann dissented on the fourth point. He considered that the exclusion of every tenant from the hypothetical market necessarily removed hope value arising from any reversionary transaction with any tenant. In his view, differentiating between participating and non-participating tenants was unsupported by the statutory language.

6. Per Lord Walker, the human-rights argument could not alter the result. Parliament enjoyed a wide margin when formulating measures to remedy social injustice, and the landlord’s receipt of half the marriage value bore a reasonable relationship of proportionality. Where hope value was legally permissible, its existence and amount remained matters for the valuation tribunal.

1. House of Lords: By [2008] UKHL 71, dismissed the landlords’ appeals in Sportelli, Pitts and Wang and Atlantic Telecasters, but allowed the appeals in Grandeden and 27/29 Sloane Gardens to the stated extent.
2. Court of Appeal: In [2007] EWCA Civ 1042, reported at [2008] 1 WLR 2142, upheld the conclusion that hope value was unavailable under Schedules 6 and 13. In [2007] EWCA Civ 1280, upheld the exclusion of hope value under section 9(1A) of the Leasehold Reform Act 1967.
3. Lands Tribunal: In the collective-enfranchisement and lease-extension cases, held that no hope value could be included under paragraph 3 of Schedule 6 or paragraph 3 of Schedule 13. In the house-enfranchisement cases, held that hope value was unavailable under section 9(1A).
4. Leasehold Valuation Tribunal: Determined the disputed statutory valuations in the five proceedings, with differing treatments or concessions concerning hope value.