What is Marriage Value?
Marriage Value is a fundamental concept in lease extensions that often surprises leaseholders with its impact on costs. When you extend your lease, you create extra value by combining (or "marrying") the landlord's and tenant's interests in the property. A way of thinking about this is that the flat and the freehold are two separate things. Like a knife and fork, on their own each has value, but when you join them together they are more valuable as a pair. Once a lease falls below 80 years, you should account for the fact that the lease is short enough that the freeholder needs to be compensated for splitting the knife and fork – it should almost be called divorce value! Under the Leasehold Reform, Housing and Urban Development Act 1993, this extra value must be shared with your landlord, but only when your lease has less than 80 years remaining.
A Simple Example
Let's look at a typical flat to understand how Marriage Value works. Imagine your flat is worth £180,000 with its current 75-year lease, but would be worth £250,000 with a new extended lease. The landlord's interest is worth £20,000 before the extension and will be worth £5,000 after. Before extension, the total value is £200,000 (combining your interest and the landlord's). After extension, the total value becomes £250,000. The Marriage Value is this difference of £50,000, and you would need to pay your landlord half of this amount (£25,000) as part of your lease extension premium.
Why It Matters to You
Marriage Value can dramatically affect how much you pay to extend your lease. When your lease drops below 80 years, the cost of extending it often doubles because of Marriage Value. This makes the timing of your lease extension crucial - extending before your lease drops below 80 years could save you thousands of pounds. The impact extends beyond just lease extensions, affecting property values, mortgage options, and even your ability to sell your property.
The 80-Year Threshold
The 80-year mark is the most critical point in your lease's life. Once your lease drops even a single day below 80 years, you must pay half of any Marriage Value to your landlord when extending your lease. This single threshold can mean the difference between an affordable lease extension and one that costs tens of thousands of pounds more.
What Affects Marriage Value?
The amount of Marriage Value depends on several connected factors. The most important is your remaining lease length - the shorter the lease, the higher the Marriage Value tends to be. This makes sense because shorter leases are worth much less than longer ones, creating more potential for value increase when extended. What it comes down to is the relative value between the future long lease and the current short lease.
Future Changes
The landscape of Marriage Value is set to change. The government has proposed reforms that would abolish Marriage Value completely as part of broader leasehold reforms. These changes would simplify lease extensions and reduce costs for leaseholders significantly. However, until these reforms become law, the current system remains in place, making it crucial to understand how Marriage Value affects you today.
Practical Approach
Start by checking your exact lease length now. If you're approaching 80 years, consider extending your lease sooner rather than later. If you are already in marriage value then the potential reforms could make the cost cheaper.
Remember: Marriage Value can significantly increase the cost of extending your lease. The key is to act before your lease drops below 80 years whenever possible.
