Happy New Year everyone.
A slew of stuff in the popular press today about leasehold reform and notably the abolishment of ‘marriage value’. You remember I was quoted this time last year on that subject. Marriage value is the supposed increase in value of a property when the freehold is added to the lease, relevant in the calculations of extending leases of less than 80 years.
The idea is that two Chinese vases are separately worth less than when combined as a pair. True, if the market does not know of the existence of both vases. But the discovery of their existence should raise the value of each vase taken singly, because the discovery creates expectations of the possibility of ownership of both vases by a single person. This increase in value in the value of both vases must occur before actual joint ownership is achieved – unless a party with the one vase does not realise the existence of the other.
Now the calculations used by the Tribunal do come up with a marriage value, but that is because the current system values leases under 80 years with an artificially low ‘deferment rate’. That decreases the value of the existing lease relative to its true value. When the term of lease is extended, usually well beyond 80 years, a new and higher deferment rate is applied. That artificially increases the value of the existing lease, which creates the marriage value.
The ‘marriage value’ is simply the difference between what the existing lease should have been valued at, and the undervalued amount used for the calculation. Hence, leaseholders are being asked to pay for something they already had.
Housing Minister Robert Jenrick is quoted in the Mail suggesting that this absurd system is abolished
We’re also scrapping the complex and opaque process for leaseholders looking to buy their freehold or extend their lease – abolishing prohibitive and arcane costs like ‘marriage value’ and prescribing fair rates in a new, straightforward calculation which will cut the cost of extending a lease or buying the freehold and potentially saving leaseholders thousands of pounds.
But whether it has really been abolished, and will not surface in some other complex and arcane way, remains to be seen.
Fingers crossed.