Jan 2020
If you own a leasehold property, chances are when you purchased, you were also granted a period of time remaining on the lease. If that time period is about to expire, or you have less than 80 years remaining on the lease, you might want to watch out for an added cost that is really putting a sting into the leaseholder.
Purchasing property on a leasehold simply means you have the right to occupy it for a set number of years – as opposed to owning it outright as a freehold. Commonly today, leases are usually for 125 years, however, if you sell your property to someone else, the new buyer doesn’t receive a new 125-year leasehold, they would simply purchase the remaining amount of time that was left.
The problem is, if a property is sold with a short lease, it might not be as attractive to a buyer. Mortgage lenders do not like to lend on shorter leases, plus, unwitting purchasers may not want to commit themselves to the additional costs associated with extending the lease, as well as the overall purchase of the property.
A leaseholder can ask to buy more years – particularly if there are only a few years left on the lease. However, people who are opting to do that are finding themselves caught out by an expensive premium, known as the marriage value.
In a story published by the BBC one gentleman was forced into paying £42,000 to extend the leasehold on his flat. Almost one third of that was the marriage value – a cost that is applied to leases with less than 80 years remaining. It’s probably the least well-known value added cost, compared to more common ground rents and other restrictions which tend to be more likely to hit the headlines.
While leaseholders view marriage value as an unnecessary and expensive, additional charge which should be banned, for the freeholder investors, it is a key source of revenue and fair based on the increase in value of the land and property over the period of the lease.
Both groups await a report from the Law Commission, which is likely to recommend a reform in the leasehold sector. If the marriage value is abolished, it could leave a hole as big as £2.5bn a year.
If you are considering buying a property with a shorter lease, or you are already own a property and are looking to extend the lease, you could consider getting the property valued. That could give a much more accurate reflection of the value accrued in the property and therefore give you an easier negotiating position with the landowner to bring down the marriage value.
The Leasehold Reform, Housing and Urban Development Act 1993 states that the marriage value should be shared equally between you and your landlord. When calculating the marriage value, your valuer and the landlord’s valuer will rely on local knowledge and experience to assess the increase in the value of the flat arising from the new lease. Therefore it is worth having an accurate valuation at the time of renewing your lease.
If you would like any advice relating to your own property, contact Downs Solicitors to see how we can help.
