This article has been written by Linz Darlington, managing director of Homehold which offer an end-to-end lease extension service with integrated lease extension solicitors.
The Leasehold and Freehold Reform Bill is making quick progress through parliament. Since being announced in the King’s Speech on 7 November, it’s had its first two readings in the Commons and its line-by-line scrutiny by the Public Bill Committee.
The next date in the diary is the 27 February, where the revised bill will be reported back to the Commons and be read for the third time.
Keeping on top of the legislative process – proposed changes to the bill, debates and written submission from interested parties – is a mammoth task. What is clear, however, is just how divisive and contentious this bill is.
One of the headline aims of the bill is to abolish Marriage Value. In short, this would make it much cheaper for leaseholders with flats below 80 years to extend their leases. This pledge is also one of the most controversial.
What is Marriage Value?
When you do any lease extension (even when the lease is above 80 years) you must make a payment to the freeholder for their loss of the flat back at the end of the existing term, and the fact you will no longer have to pay ground rent. These are known respectively as the reversion and term payments.
But even if you add the cost of the term and reversion payments to the value of the flat with a short lease, it probably won’t total as much as what the flat would be worth with a long lease. Accordingly, when you do a lease extension you make a hypothetical profit. This profit known as “Marriage Value.”
Under the current law, where a lease is below 80 years, you must split the Marriage Value with your freeholder. This is set to change under the new law – and could save affected leaseholders many tens of thousands of pounds.
It’s my opinion that this change is not unfair on freeholders and well overdue (read more about this here), but unsurprisingly this is not a view shared the freehold community.
