The removal of hope value

Tracy Lovejoy and Martha Kent address the latest word on the government’s proposals for compulsory purchase reform. As announced by the chief planning officer in her latest letter of 19 June 2023, the government has published its response to the consultation on proposals to cap or reduce the need to pay hope value, when land is compulsorily purchased. What is hope value? Compensation for compulsorily purchased land comprises of the market value for land as well as other statutory payments. There are rules for disregarding the effect of the scheme behind the compulsory purchase when calculating what that market value is. It is, however, relevant to consider the potential development value of the land when calculating market value, and to take into account existing planning permissions as well as permissions which might have been granted had the compulsory purchase not come along, ie prospective planning permissions. Prospective planning permissions can be taken into account in a number of ways, including: (1) by agreement between the landowner and the acquiring authority; (2) by the landowner applying to the local planning authority for a certificate of alternative appropriate development, where the authority has to determine an application for that alternative, usually more valuable planning use, as if the compulsory purchase order does not exist; or (3) relying on expert evidence in a dispute as to the amount of compensation payable for a CPO. Hope value is defined by the RICS as “any element of open market value of a property in excess of the current use value, reflecting the prospect of some more valuable future use or development”. Hope value is the penultimate step in the sliding scale of assumptions about the potential development value of land. If the land actually has planning permission for a more valuable use, it would be valued as such. If there is a reasonable expectation of securing planning permission for a more valuable use, it will be assumed that the planning permission is in place. Hope value applies where there is a “less than reasonable expectation of planning permission”. Hope value can range from a mid to strong prospect or be a short- or long-term prospect of that more valuable planning permission and can lead to some very complex analysis and calculations. If there is no prospect of planning permission being in place, the land is valued at its current use. The feedback from the compulsory purchase industry is that relatively few compensation disputes are litigated on the issue of hope value. Compensation for hope value will not be granted as if the land has the benefit of an alternative planning permission. Instead, the compensation payable will reflect the chance that the alternative planning permission will be granted, implemented and realise an increase in value. This includes a review of the local plan, material planning considerations as well as physical and practical considerations like the infrastructure required for the alternative development. Hope value can add a significant uplift to the existing use values, but there have been cases where a finding of hope value has not led to any increase. Rationale for reform The rationale for the reform is based on the government seeing compulsory purchase as the key to unlocking regeneration, especially in town centres and high streets. The government is considering the cost of compulsory purchase and, in particular, whether refraining from compensating people for the potential development value of their land will make compulsory purchase faster, efficient and more viable. According to the chief planning officer, the reforms proposed in the consultation were also put forward to address complaints that the land compensation rules unnecessarily elevate hope value in the assessment of compensation, which can prevent authorities from using powers of compulsory purchase to deliver development and regeneration. The consultation sought views on capping or removing hope value for certain kinds of schemes and also sought views on whether CPO compensation should, as a rule, stay closer to existing use values rather than the rules seeking to compensate landowners for the prospect of a more valuable permission. Consultation responses The responses to the consultation set out the pros of capping hope value – centred around making compulsory purchase and therefore regeneration more viable and enabling development which would benefit the public as a whole, including much-needed infrastructure. Some responders pointed out that hope value can have the effect of inflating the compensation to beyond what the land’s market value would be in the “real world”, while others denied this effect. Still other responders stated that removing hope value, given its overall impact on the viability of CPO schemes, would not have the positive effect that the government hopes for. One of the issues raised by those who responded to the consultation is whether the proposals have sufficiently taken into account the fact that hope value is considered to be a part of the market value of land which has been compulsorily purchased and whether removing hope value has a more fundamental effect on those human rights that relate to property than the government has considered. Next steps The government has considered the consultation responses. Its current intention is to proceed with plans to allow some authorities to seek directions from the secretary of state to restrict the payment of hope value. This will be assessed on an individual basis. This power will be limited to schemes of particular public interest, like affordable and social housing or other development relating to education or health. In our view, there is also the question of whether certain types of projects, like affordable housing, and medical, health or education provision, are sufficiently in the public interest to justify the removal of hope value. Large developments, whether through the composition of the scheme, section 106 agreements or community infrastructure levy payments, are already required to provide or fund exactly these types of public benefits. There is a question of whether it is proportionate and fair for certain people, who are already having to contend with compulsory purchase, to give up some of their compensation to fund these benefits. The chief planning officer reiterated that directions will only be made by the secretary of state where the authority can show justification in the public interest for restricting the hope value payment. The authorities permitted to seek these directions will be “eligible acquiring authorities”, which include: local authorities, Homes England, development corporations and the Greater London Authority. Criteria Some criteria must be met when such authorities wish to seek this kind of direction from the secretary of state, as follows: they must demonstrate justification in the public interest of the non-payment of hope value; and they must make their request when submitting the CPO for confirmation. The authority will also be required to give notice of its intention to ask for a direction to cap or remove hope value to the landowners and for the landowners to recover the costs of opposing such a direction. This may lead to a level of uncertainty and fear of litigation on the part of authorities. The government promised certain safeguards, which include proposals that the authority will be required to show specific justification in the public interest when applying for a direction to cap hope value. The current guidance for compulsory purchase states that orders should only be made where there is a compelling case in the public interest. It would be interesting to see if authorities are required to show any public interest over and above this standard. The government will consider what other safeguards it could implement to ensure the use of this mechanism for its intended outcome, and to avoid unwanted results or side effects. The power to request the direction to ignore prospective land value is already in the Levelling-up and Regeneration Bill. If the relevant section is enacted, the government will issue guidance on how it is to be utilised. In conclusion, the proposals raise, in our view, a fundamental question of to what extent hope value is part of market value and whether the government’s response adequately addresses these issues. The proposals also raise the continuing question of the fair balance of private property rights and the public interest in regenerating land, using compulsory purchase as a tool. Read the government’s consultation response >>  Tracy Lovejoy is a senior associate and Martha Kent is a trainee solicitor in the planning & environment team at Irwin Mitchell Image © Micheile Henderson/Unsplash