Leasehold Marriage Value. How is it calculated?grsell
There are so many things you need to learn when buying a freehold or extending a lease. There are many things to be considered, most that a leasehold surveyor or Sell My Ground Rents can help with. One of the things you need to acquire information and actually understand about is the marriage value and how it can affect your investment.
A longer lease is more beneficial to a leaseholder than a shorter one, simply as the moment your lease is down to, or less than, 80 years it becomes hard to mortgage or sell. For people who need the options of taking a mortgage to buy the property, the flat a long lease to achieve the full property value.
So what is marriage value?
Lease extensions are a tricky process that takes time and money. For the freeholder the calculated bonus is called marriage value. When a leaseholder chooses to extend their lease, the property’s value rises. This increment in its value is what you call the marriage value, something that is only achieved when the lease is extended this value is then shared by the freeholder and leaseholder.
Here is how it works. Every time a leaseholder extends his lease, they benefit from the property’s increase in value. On the other hand, the freeholder is left at a disadvantage. To compensate for this loss on the freeholder’s side, marriage value was made. The 1993 Leasehold Reform Act states that this uplift in value should be split equally between the lessee and the lessor.
Essentially, marriage value is the amount given to the freeholder as his share in the increase in his property’s worth. It will always be half of the amount and is only available for any lease below 80 years. There is no marriage value for assets that has more than 80 years left in the contract.
How do you calculate it?
According to section 13 of the Leasehold Reform Act 1993, the marriage value of a property is dependent on two factor:
- First, is the value of the leaseholder’s property with the current lease, plus the value of the freeholder’s interest before a lease extension is granted.
- Second, is the value of the leaseholder’s property with a new long lease, plus the value of the freehold’s interest after the extension is granted.
Here is a simply
explained that will clarify the above:
(please note these are all fictional values used for the sole purpose of demonstration)
|Present interest of the leaseholder||:||£200,000|
|Present interest of the freeholder||+||£6,000|
|New interest of the leaseholder||:||£215,000|
|New interest of the freeholder||+||80|
The marriage value then is: £215,080 – £206,000 = £9,080 divided equally by both parties. Since the benefit is awarded to the leaseholder, they would pay £4,540 to the landlord.
As you can see, the marriage value can be higher than the new interest bound for the landowner. Marriage depends on the perceived increase in the property’s worth, which can typically be calculated through comparing to other sold and on market properties in the surrounding area. The level of escalation your property gets is directly proportional to the marriage value. You must always ensure that you have, if not the exact market value, at least the closest amount to it. When going into these processes, it is best to hire a local lease extension surveyor that have an in depth knowledge of how the properties are valued around you to be able to get a correct value.
Looking to Sell your freehold?
If you are considering selling your freehold, or would like some advice, get in touch with us at Sell My Ground Rents. We will be happy to assist you. Call us or visit our website.