Lease Extension and Marriage Value?

by Readers Question

9:01 AM, 8th September 2020
About 2 weeks ago

Lease Extension and Marriage Value?

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Lease Extension and Marriage Value?

Hi All, I was hoping for a bit of advice from the community RE. Lease Extensions, I’m a landlord with three properties in my portfolio.

Can I confirm that Marriage Value is added to the price of a lease extension when the lease falls *below* 80 years?

The reason I ask is I approached my freeholder at the beginning of March earlier in the year around extending my lease and numerous times since.

• The current lease is for 99 years from 1st January 2003
• The current lease will expire 1st January 2102
• Leaving 81 years 3 months currently unexpired

Initially, my freeholder was a little slow to reply, but with a little polite follow up I got some replies:

• End of April “You know the circumstances, we will get back as the things improve”
• Beginning of August “Please bear with me on lease extension, as we come out from COVID-19 ,will sort it out.”
• Latest “Thank you for your email, presently I am unable to give you time frame as our surveyor passed away due to COVID-19 and other are on furlough.”

Now I have no reason to believe there is any malice here, our relations have been pretty good.
Just a nagging thought, as I was hoping to have the lease extension sorted by now and 6 months have now passed since my first approach to extend.

In order to avoid the marriage value costs, I’d have to get the extension sorted before 31st Dec 2021?
i.e. I still have 15 months to sort it.

Any advice greatly received.

Chris

Editors Note: From the Leasehold Advisory Service >> https://www.lease-advice.org/lease-glossary/marriage-value/

Marriage value is the increase in the value of the property following the completion of the lease extension, reflecting the additional market value of the longer lease. In that this potential ‘profit’ only arises from the landlord’s obligation to grant the new lease, the legislation requires that it be shared equally between the parties.

The calculation of the marriage value, according to Schedule 13, is the difference between two aggregate amounts, which are:

  1. the value of the leaseholder’s interest under the present lease
    plus the value of the landlord’s interest prior to the grant of the new lease
    plus the value of any intermediate interests
  2. the value of the leaseholder’s interest with the new lease
    plus the value of the landlord’s interest once the new lease is granted
    plus the value of any intermediate interests (if remaining)

The legislation stipulates that where the unexpired term of the lease exceeds 80 years the marriage value shall be taken to be nil. In other words ,no marriage value is payable where the lease exceeds 80 years when the application to extend is served.

Taking the figures from the example, the calculation will be:

leaseholder’s present interest = £150,000
plus landlord’s present interest = £6,600
= £156,600

 

leaseholder’s new interest = £165,000
plus landlord’s new interest = £74
= £165,074

The marriage value is therefore £165,074 minus £156,600 = £8,474

Taking the 50:50 split between the landlord and the leaseholder, the leaseholder would have to pay half this figure – £4,237 – in addition to the reduction in the landlord’s interest.

In this example it can be seen that marriage value can considerably exceed the value of the landlord’s interest. Its calculation is dependent upon the estimated increase in value of the flat and, clearly, the lower that increase the lower will be the marriage value. This is an area where the input of a valuer with local knowledge is of paramount importance to both parties in order to provide substantive comparable evidence of the local market and how, if at all, flat values will be affected.

The longer the current lease the lower the latent marriage value may be, until eventually it becomes negligible.


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Comments

Neil Patterson

9:03 AM, 8th September 2020
About 2 weeks ago

I have added some notes above for readers unfamiliar on Marriage Value from the Leasehold Advisory service.

terry sullivan

10:01 AM, 8th September 2020
About 2 weeks ago

obviously the legislation was written by lawyers to enrich lawyers--leasehold should be abolished

George Harrison

10:12 AM, 8th September 2020
About 2 weeks ago

They dont use marriage values, they just pluck a figure out of fresh air

Clint

10:21 AM, 8th September 2020
About 2 weeks ago

I would suggest just serving a section 42 notice which is a statutory notice where you get an additional 90 years added to your lease with peppercorn rent which effectively means £0 ground rent but you have to initially propose a price for extension of the lease after which after negotiation you both agree to a price. You are then guaranteed to be able to extend without the leaseholder deliberately delaying if at all he is, so that the lease falls below 80 years. You are right in that there is no marriage value to pay if the lease is above 80 years.

Ron H-W

10:32 AM, 8th September 2020
About 2 weeks ago

As Clint says, serve a s.42 notice -- just make sure you do this more than 80 years before the current expiry date (i.e. before 31-Dec-2021); that will "stop the clock", so no need to wait until the dust settles.
You can always offer that you will withdraw the s.42 notice if agreement is reached by other means and before that "deadline".
BTW, I didn't need to use a s.42 notice because I was able to negotiate agreement on the sale of freehold to the lessees' management company a few months before that "magic" 80 years, though actual completion wasn't until after that magic date.

Darren Peters

10:39 AM, 8th September 2020
About 2 weeks ago

I did a quick calculation using

https://www.lease-advice.org/calculator/

to see the difference between 80 years unexpired and 79 years unexpired on a £200,000 property just to give a sense of the difference on cost of extension. 79 years calculates at £13,000 plus costs. 80 years calculates at £3-5000 plus costs.

I'm sure it is a complete coincidence that your Freeholder is dragging his heels but it will still cost you significantly more if the remaining period drops below 80 years.

Therefore, if you do want to extend your Lease get a Leasehold valuer and solicitor and put a Section 42 in now. Then the Freeholder has to come back to you with counter offer within a certain time or will have to accept your offer. I suspect that once you put in your S42 offer you will find he will magically become much quicker to respond.

All the above is opinion only take professional advice.

chris@greenlight.co.uk

11:12 AM, 8th September 2020
About 2 weeks ago

@all - what a great forum/community this is.
Brilliant advice and super quick too.
Much appreciated!
Very best,
Chris

silversurfer2017

12:25 PM, 8th September 2020
About 2 weeks ago

Definitely serve a Section 42 notice for a Statutory 90 year lease extension at a peppercorn rent. Your freeholder cannot ignore this and must submit his/her Section 45 counter notice with 2 months of having being served the Section 42 notice. If he/she does ignore it then by default you will get your 90 year lease extension, zero ground rent, for the premium you have offered in your S42 notice.

BernieW

12:59 PM, 8th September 2020
About 2 weeks ago

All freeholders and/or their managing agents will procrastinate, obfuscate and delay. It's in their financial interest to do so. I did a YouTube video about it, if you care to search it out.

The best thing to do is engage the services of a leasehold specialist solicitor and serve a section 42 notice. Then, and only then, negotiate with the freeholder to see if a better informal deal can be agreed.

Happy to discuss. Bernie Wales

chris@greenlight.co.uk

11:49 AM, 9th September 2020
About 2 weeks ago

Reply to the comment left by BernieW at 08/09/2020 - 12:59
Thanks, Bernie, I note you have a few videos out there.
Which one would be best?

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