What is "Marriage value" in the context of lease extensions?

What is "Marriage value" in the context of lease extensions?

Doubling ground rents and prohibitions on even small renovations have been in the news recently as controversy continues regarding leasehold properties.  The Law Commission is looking into whether reform is needed to deal with these problems.  However, the latest issue to hit the news is that of “marriage value”.  

So what is marriage value?  Marriage value has nothing to do with marital bliss.  It is the term given to the amount of additional value that the leaseholder will have after the lease is extended.  The longer the unexpired term of the lease has, the lower the marriage value will be.  Any leases which still have 80 years or more to run will have no marriage value to pay.

Once the marriage value is calculated, the leaseholder is required to pay the Landlord/Freeholder half the assumed increase in value of the property once the lease has been extended.  This is intended to compensate the Landlord/Freeholder for their loss of interest once the lease is extended.

However this can come as quite a surprise to people who buy a leasehold property with a short lease who find themselves trying to negotiate a fair price with their Landlord to extend their lease.  If the leaseholder and freeholder cannot agree the premium to be payable for the lease extension then the parties will have to ask the Property Tribunal to adjudicate. However this can be a time consuming process and the costs of the tribunal proceedings can sometimes outweigh the difference between the two parties’ positions. 

Freehold owners will not be keen for change as lease extensions can sometimes be a good income, particularly for freeholders who own numerous properties or have a large block of flats.  So what is next for the industry? 

We anticipate that the Law Commission will consider making recommendations in this area to assist leaseholders with some of the controversy that surrounds owning leasehold property.  They will have to balance this with the needs of Freeholders who rely on their property portfolios for income.  We do not anticipate that marriage value will be abolished completely, but they may consider lowering the time that the payment becomes due or a shift in the percentage payable by the leaseholder.  Watch this space for more on this subject.

If you would like to consider a lease extension, either as a freeholder or leaseholder, then our expert team are here to help you.  We can either help with the conveyancing process once your premium is agreed or assist you with a Tribunal application.  Contact our team on 0208 949 9500.