Leasehold Houses - Valuation for enfranchisement
How much does it cost to buy the freehold of a leasehold house? This guide outlines the valuation principles for enfranchising a leasehold house
8th January, 2020
Today the Law Commission publishes its report on valuation in enfranchisement. The Commission sets out options to reduce the cost that leaseholders have to pay to buy the freehold or extend the lease of their homes, and follows its September 2018 consultation paper – ‘Leasehold home ownership: buying your freehold or extending your lease’.
The report proposes three principal options and seven ‘sub-options’ (see flowchart below)
Professor Nicholas Hopkins, Property Law Commissioner said:
“We were asked to provide options for reform that save leaseholders money when buying their freehold or extending their lease, while ensuring that sufficient compensation is paid to landlords. This is what we’ve done.
“We are ready to help the Government in implementing whichever options for reform they choose.”
Housing Secretary Rt Hon Robert Jenrick MP said:
“I welcome these proposals from the Law Commission which provide options to make it simpler and faster for leaseholders to buy their freehold or extend their lease.
“I will consider the proposals outlined in this report carefully and set out our preferred way forward in due course.
“We have already committed to addressing the abuses of leasehold seen in recent years, by reducing ground rents to a peppercorn level and limiting new leasehold to apartments, save in the most exceptional circumstances. The Competition and Markets Authority is examining the alleged misselling of leasehold properties and I will also await their findings with interest.”
LEASE’s Interim Chair, Wanda Goldwag said:
“We welcome the Law Commission’s report, and we are pleased to see the Law Commission noting our response to their September 2018 consultation. We look forward to continuing to support the reform agenda in the months ahead.”
- ‘The Term’: the value of ground rent over the remaining years of the lease.
- ‘The Reversion’: the value for the landlord of getting the property back at the end of the lease.
- ‘Marriage Value’: the additional value that is gained when the landlord’s and leaseholder’s separate interests are “married” into single ownership.
Marriage value is the difference between:
- The value of the freehold in single ownership, and
- The value of both (a) the freehold interest and (b) the leasehold interest in separate ownership.
The value of (1) is often more than (2). Marriage value is “realised” or “released” by an enfranchisement claim because the freehold and leasehold interests, previously in separate ownership, are now in single ownership. [Where the lease has 80 years or less to run, the leaseholder must pay half of the marriage value to the landlord.]
- ‘Hope Value’: a deferred form of marriage value. If the freehold is sold to someone other than the leaseholder, marriage value will not be realised as a result of that sale. However, the purchaser might “hope” that they will sell the freehold to the leaseholder in the future, which will realise marriage value, so the purchaser will pay a proportion of the marriage value to reflect the “hope” of being able to do that deal in the future.
The Law Commission’s other leasehold projects are due to be published in the Spring 2020:
- Final recommendations for reforming non-valuation aspects of the enfranchisement regime and aims to release a report on those issues in Spring.
- Making it easier for those who wish to exercise their Right to Manage to take direct control of their block; and
- To rethink how we own property in England and Wales and, through Commonhold, offer homeowners an alternative system to leasehold
LEASE’s enfranchisement valuation information:
- Collective Enfranchisement – Valuation
- Leasehold extension – valuation
- Leasehold Houses – Valuation for Enfranchisement