Marriage value is often discussed when it comes to lease extension. According to the Leasehold Reform Act 1993, if a lease has fewer than eighty years left to run, and the leaseholder decides they would like to extend their lease, then an extra premium called the “marriage value” is paid to the freeholder or landlord.
Calculating marriage value
It’s a complex business, but put as simply as possible, the marriage value is calculated as the difference between what the property is worth in its current state with a lease of less than 80 years, and what the value would be with the new lease. As extending the lease term adds to the value of the property, adding an extra 90 years on often boosts its value considerably. The value is called the “marriage value” because the value of the extended lease is “married” with the value of the property, and the value of the two things together is more than the value of both separately.
The freeholder or landlord is entitled to 50% share of the marriage value under the terms of the 1993 Act. Previously the freeholder’s share was up for negotiation, but is now fixed. The marriage value figure itself can vary enormously depending on how many years there are left to run on the original lease when the application to extend is made.
As the number of years left on a lease decrease the property’s value starts to drop sharply, so the 50% of the marriage value due to the freeholder starts to get larger once the 80 year milestone has passed and the clock starts ticking. Every year or month which the applicant delays applying to extend a lease can be extremely costly.
There are two key points to take note of in the discussion around marriage value. Firstly, the marriage value only comes into play if you are going through the formal or statutory process to extend your leasehold. So marriage value is not strictly relevant if you negotiate an informal lease extension with your freeholder. Also, as soon as the remaining term on your lease drops below the magic 80 years, the marriage value comes into force. This is especially something to be aware of if your lease is getting close to the 80 year mark as delay could cost you tens of thousands of pounds.
Marriage value – the key points to remember
There are three main points to take away from the whole topic of leasehold extension and marriage values.
1. Never delay when thinking of extending the lease. If you have your wits about you, you will ensure that your lease is extended well before 80 years remaining. Any lease with more than 80 years remaining can be extended without paying any marriage value at all.
2. If you are within a year or less of your lease term hitting 80 years, be aware that it is not unheard of for freeholders and landlords to employ delaying tactics to try to push the application through the 80 year barrier where marriage value becomes due. Unscrupulous landlords have been known to agree to informal lease extensions where the term is a little over 80 years, but then delay – and the day. The lease drops below 80 years, they withdraw the offer of an informal lease negotiation (which they are able to do) and instead insist on a formal or statutory lease extension – when, of course, marriage value comes into play
3. If you are in the situation that a lease has already dropped below 80 years, take action to extend the lease as soon as you can as the longer you leave it, the higher the marriage value will be.
Make an appointment to speak to a solicitor specialising in lease extension work as soon as you can. He or she will guide you through the process, and will help you avoid any unnecessary costs and pitfalls.
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