Marriage Value

Specialist lease extension solicitors

Kings Speech November 2023 Marriage Value Update –  Despite previous apparent commitments by the government to abolish marriage value, it was very noticeable that the Kings speech made absolute no mention of it. That may be significant. However, rather surprisingly, after the King’s Speech, Housing Minister Rachel Maclean made the following statement when asked about the issue: “Marriage value will be abolished and we will say more about how the cost will work when we come forward with the Bill.”

the speech was accompanied by the government providing an example of how changes to the leasehold system might work. And one particular example seemed to imply that the government does intend to abolish or amend marriage value.

It remains unclear therefore whether or not marriage value will be abolished not and if so whether it will be limited only to new leases rather than extended to all existing leases. It is also unclear whether with a general election due before January 2025, the government will have time, given an already busy existing timetable, to enact the necessary legislation.

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.

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Calculating marriage value

It’s a complex business, but put as simply as possible, the leasehold 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 leasehold 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 or voluntary lease extension (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.

Click here to read more about Lease Extension Valuations

When will marriage value be abolished?

The short answer is there is no certainty if and when the government will shelve leasehold marriage value.

However, back in early summer 2022, Lord Greenhalgh, Minister of State for Building Safety and Fire, did give a written indication of the government’s plans for leasehold reform.

This updating information arrived in a letter received by ALEP – the Association of Leasehold Enfranchisement Practitioners, an organisation representing specialist leasehold solicitors and surveyors of which my law firm, Bonallack and Bishop is a member.

Lord Greenhalgh’s letter stated that the Leasehold (Reform Ground Rent) Act 2022 came into effect on June 30, 2022, is the first two-part programme of leasehold reform within this Parliament.

He indicated that whilst there is nothing tabled in the current session of Parliament by way of legislation, it is clearly the Government’s intention to introduce something in the second and final session of this Parliament.

Unsurprisingly the letter doesn’t contain much detail but does once again, contains a number of vague crowd pleasing slogans, with the Government ”committed to creating a fair and just housing system that works for everyone,” and pledging “support for leaseholders to make homeownership cheaper fairer and more secure.”

But there are clear signs that the government’s view is sympathetic to both leaseholders and freeholders. The letter states “too many leaseholders find the process for extending the lease or buying their freehold to complex, lacking transparency and prohibitively expensive” but equally “our reforms to enfranchisement valuation also make sure that sufficient compensation is paid to landlords to reflect their legitimate property interests.”

The only sign of any detail are the following commitments – that the government

1. “will abolish marriage value”

2. “prescribe rates for the calculations (of lease extension and enfranchisement premiums) at market value, as well as introduce an online calculator.”

Lord Greenhalgh’s letter also restates the promise that the length of a statutory lease extension will be increased to 990 years.

So how does that leave leaseholders and freeholders with regard to marriage value?

Still uncertain – though it does seem probable that we can expect to see a reform in the process of valuation and to at the very least legislation tabled to increase the lease of a statutory lease extension to 990 years within the lifetime of this Parliament.

But we couldn’t help notice that the Leasehold Reform (Ground Rent) Act 2022 only set ground rent at a peppercorn or nil rate for new or future leases. It had no effect on ground rent for existing leases. In their clear enthusiasm to support leaseholders and freeholders at the same time, we are not the only people speculating whether the government might apply the same thinking to their plans to abolish marriage value – and abolish it only for new leases.

And one other factor that might affect government thinking is the effect that any abolition of marriage value for existing leases would have on ground rent companies and pension funds. Pension funds, in particular, are heavily invested in freeholds, because they have in the past provided a completely certain and predictable increase in income from ground rents over the years. Any abolition of marriage value for existing leases would hit pension funds hard – and we don’t think that will go down well with older voters (who vote in greater numbers than younger people).

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