Where a residential tenant of leasehold property is seeking to obtain either a lease extension or seeking to acquire the freehold interest in the property (be it the entire freehold interest if the property is a house or a share in the freehold interest if the property is a flat),  one element of valuing the sum that has to be paid for that interest is “marriage value”.  Broadly  speaking this is the difference between the increase in the value of the tenant’s leasehold interest when combined with the landlord’s interest he seeks to acquire on the one hand, and without, on the other (i.e., the value of these interests “before” and “after” such an acquisition).

So, where a tenant's flat is worth  £200,000 before its lease is extended and £300,000 afterwards, and the landlord’s interest before is valued at, say £40,000, then the marriage value will be £60,000 (the difference between the total “before” value of £240,000 and the “after” value of £300,000).

In most claims made in respect of flats,  under the Leasehold Reform, Housing & Urban Development Act 1993 (“the Act”) marriage value is only payable in respect of leasehold flats where the unexpired term has fallen below 80 years and even then it is at the fixed rate of 50%.  In the above example, this would produce a sum of £30,000.

There have been a number of cases which culminated in a series of appeals heard in late 2008 by the House of Lords, being the appeals of Earl Cadogan and others v Sportelli and others (usually known, collectively, as “The Sportelli Appeals”).

Landlords had appealed the earlier decision of the Court of Appeal as to the extent to which “hope value” was a legitimate factor to be taken into account in assessing the marriage value. On occasion, a landlord may offer to sell its interest to the tenants, who decline.  This would leave a landlord free to sell to a third party.  Landlords were concerned that such a third party would in the future be able to grant new leases, whether voluntarily or under statute, and receive a premium as a result, but that this might not be taken into account in assessing the value of the premium to be paid. “Hope value”  is therefore the additional sum within the marriage value that landlords consider their interest would be worth to a purchaser based on the hope of that purchaser being able to grant new leases at a premium.

The House of Lords, in partially overturning the Court of Appeal decision, has now decided that “hope value” is to be taken into account in enfranchisement  but not in lease extension cases.  So when assessing the value of a landlord's interest when an enfranchisement claim is made by tenants to acquire that interest of a block of flats, the valuation of marriage value will include hope value.  The House of Lords did not alter the part of the decision that "hope value" is not to be taken into account in assessing marriage value in respect of tenants seeking to purchase a landlord's interest in a leasehold house or seeking an extended lease of their flats.

The decision is therefore bad news for tenants seeking to enfranchise but good news for their landlords.  Unfortunately, for tenants this will increase the amount payable by them on a collective enfranchisement,  where marriage value is payable.  There is a practical solution: for those wishing to enfranchise, they should engage the support of as many of the tenants in the block of flats as possible as the effect of the decision is  to require those participating tenants to pay a sum for the landlord’s interest which includes "hope value" even in respect of  any tenants who do not participate.  The more tenants that participate, the wider and easier the individual financial burden of the payment, spreading the cost of enfranchisement amongst as many tenants as possible.