Collective Enfranchisement - Getting Started
Outlining the qualification criteria and procedure in relation to collective enfranchisement (buying the freehold) of a residential leasehold building (flats)
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:
- 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
- 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|
|leaseholder’s new interest||= £165,000|
|plus landlord’s new interest||= £74|
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.