I read with interest the recent article suggesting that paying “marriage value” to freeholders was unfair to leaseholders when enfranchising their flats.

It is a ridiculous and self-serving argument. The author’s thesis ignores the inconvenient truth that a leaseholder does not own the land upon which the leasehold interest has been created. And more than likely, the freeholder did not intend to give ownership of the land when granting the lease in the first place.

There are three main alternatives available if one wants to occupy property. Purchase an outright freehold, or purchase a long lease, or pay rent on a short lease. The freehold provides the ultimate security, with the least security available from the short lease.

A long leasehold is simply the forward purchase of the right to occupy for the number of years of the lease. The long lease provides, for the length of the lease, equivalent security of tenure to that of the freehold, but not the reversion, and is acquired at a discount to the value of the freehold. Usually, the long leaseholder benefits from an implied discount on the rent that would otherwise have been paid over the years of a renewing short lease, in return for paying upfront.

The long lease therefore deliberately “sits between” the freehold and short lease tenure types, gaining some (though not all) of the benefits of both.

Looked at through this lens, I see no reason at all why it is “unfair” for the freeholder to participate in the growth in value that has occurred over the period of leaseholder’s tenure. It was the very principle of the arrangement; that the freeholder should get the property back at the end of the lease and be fairly rewarded for his equity interest when a new lease is granted.

The long leaseholder will have had the benefit of security of tenure for the period of the lease, and in many cases, will pay rent to the freeholder that does not in fact keep pace with inflation or property values, (for example rent reviews might occur only once every 25 years to a small proportion of the value of the property).  The freeholder has forgone their right to occupation, and likely fair rental return over the period of the lease in return for the benefit of a capital sum up front, and the retention of the value of the reversion at the end of the lease.