On Wednesday 10 December 2008, the House of Lords handed down their long-awaited judgment on the appeal case known as Sportelli. The case considered a number of important elements in the calculation of the sums payable by a group of tenants exercising their rights to buy the freehold, or by a tenant looking to extend his or her lease.

The decision reversed the previous Court of Appeal ruling in finding that hope value should be paid on the enfranchisement of a block of flats to reflect the possibility (or ‘hope’) of non-participating tenants subsequently paying for extensions of their leases.

This is good news for landlords who can in some cases expect a significant increase in the price to be paid to them by tenants who are grouping together to buy their freehold.

Tenants may take some comfort that hope value has been limited to non-participating tenants and that the House of Lords have limited the scope of the hope value itself. Tenants will also be relieved that hope value has been found not to be payable on a lease extension or when buying the freehold of a leasehold house.

In short, the case is good news for tenants of flats looking to extend their leases and for long leaseholders of houses, and good news for landlords of blocks of flats where the tenants are attempting to buy the freehold.

In light of this decision, tenants whose primary motivation for buying their freehold is to secure control of the management of the building should consider carefully whether pursuing the right to manage would be more cost-effective.

As always it remains to be seen what effect the decision will have ‘on the ground’ but it does highlight once again the need to take expert legal and valuation advice at the outset of any enfranchisement or lease extension claim.

Article by Philip Rowland, Solicitor, Adams & Remers

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