If you are debating whether or not to extend your lease then you need to know about 'marriage value'. This term is often not known by leaseholders, yet is actually quite important. Marriage value is particularly relevant to the saleability of your property and the cost of a lease extension. This article will help explain all.
Any lease extension application involves a valuation. This is a rather arcane process, but the basic principle is that the freeholder of the property needs to compensated for the delay to their interest in the property. The purpose of a lease is to enable the leaseholder to live in the property for a defined term with the knowledge that when this term ends the property will revert back to the landlord. An extended lease therefore means that the landlord has to wait longer before they can take full possession of the property again, diminishing their interest in that property.
A leasehold valuation will reflect this diminished interest, by putting a value on the difference between the present and the extended lease. It will also include loss of income from ground rents for the remainder of the original term (since the whole term of the new lease will be at a peppercorn rent). All of this is quite standard, and the sort of thing that might be reasonably expected. However, things become very different once the remainder of the lease term dips below 80 years.
At this stage, the Marriage Value enters the equation. The term arises because it's a 50:50/50 split of the value on the property if it were to be leased for another 90 years. There is no hard and fast calculation for this figure, since it's based on local property prices. Nevertheless, 90 years of generally rising property prices will obviously amount to a significant sum. Paying over 50% of this as-yet-unrealised profit to the landlord can seriously increase the valuation of extending a lease.
What you should take away from this is that it is extremely beneficial for you to extend your lease before its term drops below 80 years. Remember that the lease term is already ticking away, and you can find yourself facing this prospect surprisingly quickly. Extending your lease as a matter of priority not only will help increase your property value and its saleability, it will also help you avoid paying unnecessary marriage value.