Upper Tribunal decides on hope value of constructing additional flats on top of an existing block

A relaxation of planning rules has presented landlords of residential blocks with the tempting opportunity to extend them skywards, creating additional apartments. In a guideline case, the Upper Tribunal (UT) addressed the thorny question of whether one such project could be embarked upon without breaching tenants’ rights.

A tenant-owned management company applied to purchase the freehold of a block of flats under the leasehold enfranchisement provisions of the Leasehold Reform, Housing and Urban Development Act 1993. There was an extant planning consent to construct two new flats on top of the block. An issue arose as to whether, or to what extent, the so-called ‘hope value’ arising from the planning permission should be reflected in the price the landlord was entitled to receive for the freehold.

In fixing that price at £49,500, the First-tier Tribunal (FTT) found that, despite the planning permission, the new flats could not be built without substantially interfering with the rights and obligations of the company and the flats’ tenants, as set out in their long leases. On the basis that the landlord might be able to reach a negotiated compromise with the tenants, the FTT assessed the hope value at £25,000.

Upholding the landlord’s appeal against that outcome, the UT noted that it had never parted with possession of the block’s roof and the airspace above it. They had not been demised to the tenants and, in principle, the landlord had the right to develop its own property as it saw fit. The UT acknowledged that the landlord would face practical challenges in building the flats without interfering with the rights and obligations of the company and the tenants. However, it assessed the hope value at £166,725 and the total price payable by the company for the freehold at £191,225.

Vectis Property Company Limited v Cambrai Court Management Company Limited