Abandon hope, all ye who enter here – LURA “hope value” provisions take effect from 30 April 2024

The Levelling-up and Regeneration Act 2023 (Commencement No.3 and Transitional and Savings Provision) Regulations 2024 were made on 18 March 2024, which implements a pLURAlity of sections of the Levelling-up and Regeneration Act (“LURA”), including s190 LURA which relates to the disapplication of “hope value” in certain circumstances and comes into effect on 30 April 2024. The commencement regulations also implement the changes to certificates of alternative appropriate developments (“CAAD”) (s189 LURA) – but these will not be in effect until 31 January 2025.

What is Hope Value?

LURA aims to address regional inequalities, drive economic growth and stimulate development. A key (but contentious) element of this is the attempt to reform land acquisition costs through the disapplication of “hope value.”

Traditionally, when land is purchased for development via compulsion, landowners are compensated based on the market value (i.e. what price would be paid between a willing buyer and a willing seller), the aim of which is to put landowners in a position of Equivalence. This value could be based on the current use of the land, development value (if a planning permission is in place) and/or an additional amount on top of the value of the existing use reflecting what would be paid by a purchaser  to reflect the potential for a future alternative use/development with an enhanced value. This additional premium, reflecting the “hope” of future development possibilities, is known as hope value.

Why Disapply Hope Value?

There is a belief held by various interested parties that hope value can significantly inflate land prices, making it difficult for public authorities, like local councils and housing associations, to acquire land for essential projects such as affordable housing, schools, and hospitals. This is seen as a factor that can hinder regeneration efforts in disadvantaged areas.

The Levelling Up ‘Solution’

LURA empowers the Secretary of State to disapply hope value in specific circumstances and where there is a compelling case in the public interest. This means landowners would be compensated based on the land’s current use value (or the development value of an existing planning permission/CAAD). Compensation will not include, in those circumstances, the value of any future potential of development. This disapplication of hope value will only be relevant for projects deemed crucial for regeneration, such as:

• Affordable housing developments
• Educational facilities
• Healthcare infrastructure

Changes to CAAD

Alongside disapplying hope value in specified circumstances, LURA introduces significant changes to the CAAD process, a mechanism previously used to establish development value for compensation purposes. The changes include:

No More “Negative” CAADs: Previously, local authorities could issue “negative” CAADs, stating that no appropriate alternative development was possible. This option has been removed. Now, authorities must consider the proposed development and either grant a CAAD for that specific type of development or a less extensive form within the same category.

Landowner Costs: LURA removes the requirement for acquiring authorities to cover the landowner’s costs associated with obtaining a CAAD.

CAAD Deadline: The ability to secure a CAAD after land acquisition is no longer possible. The relevant valuation date now dictates the timeframe for establishing development value.

Benefits and Concerns

The combined effect of disapplying hope value and reforming CAAD aims to:

Streamline the process: By removing “negative” CAADs and clarifying timelines, the CAAD assessment process and land acquisition is expected to be faster and less complicated.

Reduced Compensation: The aim is that disapplying hope value ensures reduced land assembly costs, while the CAAD changes ensure a clearer path to establishing development value.

Unlocking Regeneration: By reducing costs and uncertainties, the ambition of the reforms is to encourage development in areas needing regeneration.

However, significant concerns remain within the industry:

Disapplication of hope value: Although this will only apply in specified circumstances there is concern that (i) this provision will, in many cases, make little difference to the cost of land assembly due to the nature and value of land, specifically in town centre areas and (ii) where there is a difference, it potentially unfairly treats landowners who will be paid under the market value for their land, infringing the core tenet of compensation, Equivalence.

Landowner Rights: Some argue that removing “negative” CAADs and shifting cost burdens could disadvantage landowners. Landowners will now bear the costs themselves which puts an increased evidential and financial burden on landowners to demonstrate development value.

Objections and impact to early voluntary agreements: The disapplication of hope value means that landowners are put in a potentially disadvantaged position as they could receive less than the market value of their land. This may lead to increased numbers of objections, protracted negotiations, referrals to the Upper Tribunal (Lands Chamber) and make early acquisition prior to a CPO extremely challenging.

Overburdening of local authorities: The disapplication of hope value will mean that an increasing number of potentially impacted landowners will seek to apply for planning permissions or CAADs to protect their land value. This could overburden already stretched local authority planning services.

Implementation Challenges: Clear guidelines and consistent application are crucial for the success of these reforms.

Hope Springs Eternal

The disapplication of hope value and the reforms to CAAD under LURA represent a potentially significant shift in land assembly for regeneration schemes. While it is not possible to understand yet the benefits for regeneration and social housing delivery – it will be interesting to see the impact on the first CPO test case, whenever that might be. Careful monitoring and adjustments are likely to be necessary to ensure a balanced approach that fosters development without sacrificing landowner rights as this could add to the risk of delay (and conversely the viability and deliverability of regeneration schemes) due to the potential in increased numbers of objections, failures in early voluntary land assembly and claims that are referred to dispute resolution procedures.

For more on the impact of the disapplication of hope value under LURA – see Levelling Up or Landlocked? Hope Value Takes Centre Stage in Regeneration Debate – an article from Ardent’s Head of Regeneration, John Sayer.  

To discuss these issues or how we can support you in respect of a regeneration or development scheme you are promoting (or are impacted by), please do get in touch.