February 27, 2024
When it comes to leasehold properties, the term “Marriage Value” holds significant importance in the context of extending the lease of a property. Understanding this concept is vital for leaseholders considering lease extension, as it directly influences the cost involved in this process.
What is Marriage Value?
Marriage Value refers to the potential increase in the property’s value resulting from the extension of its lease. This increment is perceived as a ‘profit’ that arises due to the landlord’s obligation to grant a new lease, and by law, it must be shared equally between the leaseholder and the landlord. The rationale behind Marriage Value is grounded in the enhanced market value that a longer lease bestows upon a property, making this concept crucial in lease extension negotiations and calculations.
How is Marriage Value Calculated?
The calculation of Marriage Value is a critical aspect of the lease extension process, as it determines the additional cost a leaseholder must pay due to the increased property value resulting from the lease extension. This calculation is methodical and follows specific guidelines outlined in legislation, ensuring fairness in the division of the increased value between the leaseholder and the landlord.
The Fundamental Principles
Marriage Value emerges when the lease of a property is extended, enhancing the property’s market value due to the longer lease term. It is premised on the notion that the combined value of the leaseholder’s and landlord’s interests’ post-extension exceeds their total value before the extension. This ‘surplus’ value, or Marriage Value, is then equally split between the leaseholder and the landlord, acknowledging the mutual benefit derived from the lease extension.
Step-by-Step Calculation
- Assessing Initial Interests: The first step involves assessing the value of the leaseholder’s interest under the existing lease terms, alongside the value of the landlord’s interest prior to the extension, and the value of any intermediate interests if present.
- Valuing Post-Extension Interests: Subsequently, the values are recalculated to reflect the scenario post-lease extension. This includes the revised value of the leaseholder’s interest with the extended lease, the landlord’s interest after granting the new lease, and any remaining intermediate interests.
- Calculating the Difference: The Marriage Value is determined by subtracting the total initial interests’ value from the total post-extension interests’ value. This difference represents the additional value created by extending the lease, which is the essence of the Marriage Value.
- Division of Marriage Value: The legislation mandates that the Marriage Value be split equally between the leaseholder and the landlord. This equitable distribution ensures that both parties benefit from the enhanced value resulting from the lease extension.
Special Considerations
80-Year Threshold
A pivotal aspect of Marriage Value calculation is the 80-year rule. If the unexpired term of the lease exceeds 80 years at the time the lease extension application is made, the Marriage Value is considered to be nil. This legislative provision significantly impacts the strategy of leaseholders regarding the timing of their lease extension applications.
Professional Valuation and Negotiation
The calculation of Marriage Value is not just a mathematical exercise but a process deeply rooted in the principles of equity and market value enhancement. Given the complexities involved in calculating Marriage Value and its significant impact on the cost of a lease extension, it is imperative for leaseholders to seek professional advice. Engaging with valuation surveyors who possess expertise in this area and are familiar with local property markets can provide leaseholders with accurate estimations and assist in negotiations with landlords. This professional input is crucial in ensuring that leaseholders make informed decisions and achieve favourable outcomes in their lease extension endeavours.