For tens of thousands of leaseholders across England and Wales, the concept of marriage value looms large in the cost of securing a lease extension. Many eagerly await action from the Labour Government to abolish marriage value—a move that could drastically reduce the financial burden of extending a lease because it forms the lions share of the total amount payable to extend the lease. However, despite promises of sweeping leasehold reform by successive Governments, progress has been frustratingly slow.
What Is Marriage Value in Lease Extensions?
Marriage value is a key element in calculating the premium payable for a lease extension. It refers to the additional value that is created when a leaseholder extends their lease or buys the freehold.
Essentially, it reflects the increased market value of a property with a longer lease compared to one with a short lease. Under the current legislation, half of the marriage value becomes payable when the remaining term of the lease falls below 80 years, often leading to a significant rise in the cost of extending a lease. Many leaseholders scramble to beat the drop below 80 years for this very reason.
This financial penalty incentivises leaseholders to act before their lease dips below this critical threshold. However, with the cost of living rising and property values generally increasing, many find themselves in a bind, unable to afford the upfront costs of a lease extension but equally unable to let their lease term dwindle further without incurring even greater expenses.
The 2021 Leasehold Reform Announcement: What Was Promised?
In 2021, the Government unveiled ambitious plans to reform the leasehold system.
These proposals included significant changes aimed at making the process of lease extensions fairer and more transparent for leaseholders. Among the headline promises were:
Abolishing Marriage Value: The most transformative of the proposed reforms, eliminating marriage value, would remove the steep financial penalty imposed on leaseholders with short leases. This change alone could save leaseholders thousands—or even tens of thousands—of pounds.
A Simplified Lease Extension Calculator: To replace the current, often expensive valuation process whereby each side appoints its own surveyor to negotiate, the Government proposed a standardised lease extension calculator. This tool would allow leaseholders to independently determine the cost of their lease extension without needing to pay for a professional valuation.
Changes to Lease Terms: Extending lease terms to 990 years (effectively perpetual leases) with zero ground rent was also part of the reform package, designed to give leaseholders greater security and eliminate ongoing costs associated with ground rents.
Banning New Ground Rents: The first and only reform that has been implemented to date prohibits new leases from including anything other than a "peppercorn" ground rent, effectively making new leases more desir
While the reforms were heralded as a game-changer for leaseholders, little progress has been made on the more complex aspects, such as marriage value abolition and the introduction of the lease extension calculator. This is due to the fact that many investors stand to lose a lot of money when these reforms come in, and the changes are therefore likely to be challenged.
Why Delays in Reform Are Costly for Leaseholders
For leaseholders considering extending their lease, the delay in implementing these reforms has significant financial implications. Under the current system, the cost of a lease extension rises steadily due to three main factors:
Diminishing Lease Terms: As the remaining term of a lease decreases, the cost of extending it increases. This is particularly true for leases nearing or below the critical 80-year threshold, where marriage value becomes a mandatory consideration in the premium calculation.
Rising Property Values: With property prices generally on an upward trajectory, the market value of the property plays a role in determining the marriage value. As property values increase, so too does the premium for extending a lease.
Escalating Ground Rents: Many leaseholders are also subject to escalating ground rents, which can add to the overall costs of their lease obligations. While ground rents are set to be eliminated for new leases, those with existing leases remain liable for these charges unless they negotiate a lease extension or buy the freehold.
Waiting for reform to abolish marriage value can therefore be a double-edged sword and is much like waiting to remortgage in the hope that interest rates decrease; it is a gamble either way and as leaseholder lawyers we are unable to speculate on whether to proceed now or wait. Leaseholders who delay extending their lease in anticipation of reduced costs may find themselves paying more if reforms take longer to materialise.
What Should Leaseholders Do Now?
The uncertainty surrounding the timing of leasehold reforms leaves leaseholders in a challenging position. For those whose leases are approaching the 80-year mark, taking action sooner rather than later may be the most prudent choice. Waiting for the abolition of marriage value, while potentially beneficial in the long run, carries the risk of escalating costs in the interim.
To navigate this complex landscape, leaseholders should:
Seek Professional Advice: Consulting with a solicitor or surveyor who specialises in leasehold law can help you understand your specific circumstances and the costs involved in a lease extension. Importantly, you can establish if there is an increased risk associated with waiting in your particular case, as each lease is different.
Consider Timing Carefully: If your lease is close to 80 years, the potential savings from avoiding marriage value may outweigh the cost of acting now, even if reforms are enacted later.
Monitor Government Announcements: Stay informed about updates on leasehold reform to understand how changes could affect your situation. Parts of the Leasehold and Freehold Reform Act 2024 are expected to be brought in during 2025.
Final thoughts
The abolition of marriage value would be a monumental shift in the leasehold system, offering significant financial relief to leaseholders. However, with delays in implementing reforms, the cost of waiting may outweigh the benefits for some leaseholders. Extending your lease now could help mitigate the risk of rising premiums due to diminishing lease terms, increasing property values, and escalating ground rents.
For leaseholders looking to extend their lease, understanding marriage value and its impact on costs is critical. While the Labour Government's pledge to abolish marriage value holds promise, the timeline for reform remains uncertain. By acting strategically and seeking expert advice, you can make informed decisions to protect your investment and financial future.
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