The BBC leasehold programme will be broadcast on Moneybox today at 12:04. The accompanying article is already available here, and has already attracted the ire of ‘property guru’ Richard Lovell on Twitter.
The ignorance of a BoE regulator is frightening … The principle of merged interests being worth more than the sum of the individual parts is well known in finance and commerce. It’s the justification for M&A! What quality regulation?
Well Richard, another well-known principle of finance, perhaps not of commerce, is ‘no arbitrage’. The sum of the market values of items A and B must be the same whether owned separately or together, otherwise we could buy the items separately and sell them combined for a riskless profit.
Suppose the values when separated are different, and that the owner of A wants to buy from the owner of B at lower than the no-arbitrage price. Then the owner of B, assuming a rational seller, would see the value to the owner of A, and would bid up the selling price until a sale could take place.
That’s not to deny that such sales can happen, and that profits can be made. But the law requires that leasehold extensions be granted at a premium consistent with market value, i.e. for a price that would be agreed between knowledgeable and willing participants, at arm’s length etc etc. That principle is not consistent with ‘marriage value’.