A great piece here from BBC journalist Howard Mustoe, about an added cost on extending a leasehold with fewer than 80 years remaining, called marriage value.
Marriage value is supposed to represent the additional value of combining the leasehold and freehold interests in a property. Think of it like a timeshare. The leaseholder owns the right to possession for the first 50 (say) years, which is like owning 50 1 year forward rentals, the freeholder owns the right to possess after that. Marriage value is supposed to be the difference between the value of the property with vacant possession, and the sum of the leasehold and freehold interests.
When you use the formula adopted by the Tribunal, which is a weird mixture of something called ‘relativity charts’ to value the leasehold interest, and our friend the deferment rate to value the remaining freehold interest, it does not add up to the imputed value of vacant possession. According to the usual vested interests, the difference is the marriage value. They liken it to a pair of Chinese vases which are worth less when separated than when owned as a pair.
The argument is economically incoherent for reasons I will explain later. The leaseholder in the BBC article is complaining (rightly) that it is there “to make the valuation higher for the freeholder.”
It shouldn’t really exist, argues Dean Buckner [who he?], a former Bank of England regulator and trustee of the Leasehold Knowledge Partnership, which campaigns for reform. “You are asking someone to pay someone else for something they already own,” he says.
Doesn’t add up, eh?