Transport for London (London Underground Limited) v Spirerose Limited (in administration)

The House of Lords held that, for assessment of compensation under the Land Compensation Act 1961 (rule (2) of section 5), a probability that planning permission would have been granted does not permit the tribunal to assume certainty of grant. Where permission was only probable the valuation must reflect that lack of certainty and be discounted as "hope value." The court emphasised that the statutory assumptions in sections 14–17 of the 1961 Act govern when permission is to be treated as assumed, and that the Pointe Gourde principle is a principle of statutory interpretation which cannot be used to add an extra‑statutory assumption converting probability into certainty.

The appellant acquiring authority sought to overturn a decision below awarding compensation on the basis that planning permission would be assumed to have been granted despite the fact that at the valuation date permission had not in fact been granted and the statutory assumptions in the Land Compensation Act 1961 did not apply.

Background and parties:

• Claimant/respondent: Spirerose Ltd (owner of a small printing works site in Hackney).
• Defendant/appellant: Transport for London (London Underground Limited), acquiring land for the East London Line Extension.

Procedural history: The Lands Tribunal found that, on the balance of probability, planning permission for mixed use redevelopment would have been granted and awarded compensation on the footing that permission should be assumed (residual valuation £608,000). The Court of Appeal affirmed that approach ([2008] EWCA Civ 1230). The acquiring authority appealed to the House of Lords.

Nature of the claim and relief sought: Assessment of compensation payable for compulsory acquisition of land; respondent sought valuation on the basis that planning permission would be assumed, producing a higher award; acquiring authority contended that where permission was merely probable compensation should be discounted to reflect uncertainty ("hope value").

Issues framed:

• Whether a tribunal may treat a probable grant of planning permission as an assumed certainty for valuation purposes where no statutory assumption under the 1961 Act applies.
• Whether the Pointe Gourde principle or other authorities permit elevating a balance of probabilities finding into a full assumption of permission outside the statutory scheme.
• How the market valuation should reflect the land's development potential in a "no‑scheme world."

Court’s reasoning and resolution of issues:

• The statutory valuation rule (Rule (2) of section 5) requires an open market valuation taking account of attributes of the land as at the valuation date; absent a statutory assumption one must not add attributes the land does not possess.
• The statutory assumptions in sections 14–17 of the Land Compensation Act 1961 set out when planning permission may be treated as assumed; the court will not, by analogy or application of the Pointe Gourde principle, create an additional, extra‑statutory assumption turning probability into certainty.
• The Pointe Gourde principle is a principle of statutory interpretation concerned with the meaning of "value" and with excluding value attributable solely to the acquiring scheme; it does not authorise assuming planning permission where only a probability exists unless the statutory code requires it.
• Valuation must reflect development potential by discounting for risk; thus where permission is probable but not certain the appropriate approach is to apply hope value rather than to adopt a full residual valuation premised on assumed permission.

Subsidiary findings: The Court examined prior authorities (Jelson, Melwood, Porter and Waters) and concluded they did not establish a rule that a tribunal may routinely treat probability as certainty; in this case the Lands Tribunal had erred in valuing on the basis of assumed permission.

Appeal allowed. The House of Lords held that where planning permission was only probable the valuation must reflect that uncertainty ("hope value") rather than treat probability as certainty. The statutory assumptions in the Land Compensation Act 1961 govern when permission may be treated as assumed, and the Pointe Gourde principle cannot be used to add extra‑statutory assumptions converting probability into certainty. Accordingly the award based on assumed permission was reversed in favour of a hope value assessment.

Appeal from the Court of Appeal, Civil Division ([2008] EWCA Civ 1230) which had affirmed the Lands Tribunal. The House of Lords allowed the appeal ([2009] UKHL 44) and ordered valuation on a hope value basis.