The concept of ‘hope value’ was introduced after complaints that landowners, whose land had been compulsorily acquired for the building of the new towns after the Second World War, had not been fairly compensated. The Reform of the Land Compensation Act 1961 allowed actual or potential planning permission to be factored in when calculating how much compensation landowners should be entitled to when their land is subject to a CPO. Although the original premise was to ensure that farmers who lost productive agricultural land would receive existing use value (EUV) of the land, plus a premium to reflect future lost earnings, many now argue that such payments are anachronistic and responsible for the artificial inflation of land prices.
Of course, there are two sides to the argument. Those defending hope value point out that it is rarely a negative factor in either the viability of schemes or the speed at which they are brought forward. Indeed, a RICS analysis indicates that hope value does not automatically result in an uplift to compensation payments particularly if the value of the land, retained by the landowner outside the scope of a CPO, increases as a result of the scheme being built. RICS also reviewed the number of disputes over the payment of hope value and concluded that they were few in number and of those that did get to tribunal most did not feature sums likely to affect the viability of the schemes in question.
Hope value considered a barrier to levelling up
Nonetheless, the government, having considered that hope value is sufficiently contentious and poses a potential barrier to their policy of levelling up, has incorporated changes to the CPO system in the Levelling Up and Regeneration Act 2023 (LURA), which received Royal Assent in October. Under the Act, local authorities can apply to the Secretary of State to remove, or cap, hope value from compensation payments to landowners whose land is being compulsorily purchased for education, affordable housing or health-related schemes. This appears to mean that the SoS will only be called upon to act in fairly limited circumstances and thus is not likely to affect wider regeneration projects with a commercial aspect. This limited approach contrasts with Labour’s proposed policy on hope value, announced earlier this year, which indicated that they would enable local authorities to buy land for development without factoring in hope value, regardless of the circumstances. Inevitably, this has led to warnings that withdrawing hope value altogether would increase the number of challenges, including judicial reviews, making the CPO process more risky for local authorities to pursue and putting much needed regeneration schemes at risk.
Landowners must fund CAAD
Before LURA, landowners could claim hope value if there was a realistic chance of planning permission being granted or if appropriate alternative development could be established. If the latter, they could apply for a Certificate of Appropriate Development (CAAD), paid for by the acquiring authority if there was insufficient evidence of existing planning permission to establish hope value. The government’s view is that the use of AADs inflated the compensation payable because it was assumed that planning permission was inevitable rather than possible. Under LURA, a local authority is now only required to consider (rather than accept) an AAD and if a landowner wishes to apply for a CAAD, they have to do so at their own expense.
The reference to hope value within the Act is a relatively minor clause within the legislation as a whole and the decision to allow its removal or capping at the discretion of the SoS gives the latter considerable wriggle room. It also represents a compromise in the face of Labour’s published intent to remove it altogether. In the long run, whether this will make any material difference to the speed at which local authorities are able to initiate regeneration projects remains to be seen. There are already several examples of local authority-led schemes that have been scuppered by factors other than the size of compensation payments, not least incomplete or conflicted local plans. The debate is likely to rumble on for some time.