What is 'Marriage Vale'
Marriage Value is the monetary increase in the value of a residential leasehold property following an extension of the lease. It makes sense that a lease extension will result in an increase in the value of the leaseholder’s interest. The more years left on the leasehold, the longer a leaseholder can inhabit the demised premises, the more valuable the leaseholder’s interest. It is also true that the value of the landlord’s own interest will fall, since the landlord will not enjoy use of the demised premises for longer.
However, a landlord being deprived of the use of the demised premises on an already long lease will not be as valuable to the landlord as the leaseholder’s extended ability to enjoy use of the demised premises is to the leaseholder. The fall in the value of the landlord’s interest will be less than the increase in the value of the leaseholder’s interest. As such, after a lease extension, the combined value of the leaseholders and landlord’s interest will increase.
Marriage Value is an intricate calculation and must be valued by a competent valuer with local knowledge in order to provide high quality comparable evidence from the local market. Specters Solicitors have seen the premium of Marriage Value to cost in the region of £40,000. The Marriage Value will increase as the lease term shortens.
Since there are two parties with an interest in the property (the landlord and the leaseholder) both would potentially benefit from the increase in value. However, only the leaseholder would benefit from the increase when it comes to selling the property, even though the increase is due to the landlord’s obligation to grant a new lease. The law recognises this as unfair, and that the landlord should also benefit from the increase in the value of the combined estates, and the profit, or marriage value, should be shared equally between the parties. It follows that the leaseholder should pay the Landlord 50% of the marriage value as part of the extension application.
However, the law also imposes restrictions on the Landlord’s ability to benefit from the marriage value. The Leasehold Reform, Housing and Urban development Act 1993 only permits a landlord to claim 50% of Marriage Value premium from the leaseholder once the term left remaining on the lease has fallen below 80 years.
As such, Marriage Value is particularly important to any leaseholder who has less than 80-years left unexpired or remaining on their lease, or if the term left remaining is reaching the 80-year cut off period. Only those leaseholders who have less than 80 years left remaining on their lease will have to pay 50% of a Marriage Value premium when extending their lease.
A leaseholder should be mindful of the cut-off point and apply for a lease extension well before the 80 year cut off elapses. If you do not extend you lease before the 80-year cut off point, you will have to pay a Marriage Value premium to your landlord as well as the cost of the lease extension.
As well as the additional cost, another implication of owning a leasehold property with less than 80 years on the lease is difficulty to sell it in the future. Most lenders will not lend on a property with less than 60-70 years left unexpired. Some lenders may not lend if the years left unexpired has dropped below 80.
In addition, a competent conveyancing solicitor should warn their client of the cost they will have to pay if they were to proceed to purchase a property with less than 80 years left or if the term is approaching that point. To be legally entitled to extend your lease you must be registered as the owner of the property for at least two years. If you were to purchase a leasehold property with 81 years left on the lease at the point of purchase, you would not be entitled to apply for a lease extension before the 80-year cut off point and therefore you would need to request for the vendor to do so on your behalf before you were to take ownership. Otherwise, you would be automatically liable of the Marriage Value premium upon application for extension once you have owned the property for two years.
Therefore, it is especially paramount for any leaseholder to request a lease extension before the 80-year cut of point elapses.
Not only will this save you the cost of the additional premium of marriage value but it will also increase the saleability of your leasehold property as a prospective buyer will not have to face paying the premium themselves or not being able to find a lender to mortgage the property.