On the eve of the Law Commission’s long-awaited proposals to reform the £2.5 billion enfranchisement business – where leaseholders extend leases or buy their freeholds – LKP trustee Dean Buckner has told the BBC marriage value should not exist.
Marriage value is the supposed increase in value of a property when the freehold is added to the lease: it is relevant in the calculations of extending leases of less than 80 years.
Dr Buckner, a former Bank of England regulator and trustee of the Leasehold Knowledge Partnership, tells the BBC:
“You are asking someone to pay someone else for something they already own.”Dean Buckner
If the leaseholder has already paid for the extension, there should not be any compensation for the supposed additional “profit”.
Dr Buckner objects to the payment since the leaseholder has already paid for the extension. To consider it a profit is specious, he says, and he points out that it doesn’t exist in deals outside the property world.
The BBC report includes the case of Des Kinsella, a North London leaseholder facing a £42,00 bill to extend his lease. Almost a third of the sum is marriage value.
Every year there are around 100,000 lease extensions and about a fifth of them involve calculations for marriage value.
For Mr Kinsella, part of the expense is down to the fact that the freehold owner thinks the flat, in Ilford, east London, which he bought in 2014 for £165,000, will be worth £265,000 when an extra 90 years are added.
Much of that gain will be down to the extra years themselves – a new buyer will pay more for a flat with about 150 years to go than one with only 60, like Mr Kinsella’s. But the freeholder thinks £25,000 of it will be a profit it should share in.
Mr Kinsella says it’s very hard to find a similar property nearby that will sell for even close to that estimate, even with a share of the freehold.
He tells the BBC he is realistic about wanting to pay what is owed, but that a £25,000 gain in value – half of which he will be obliged to pay to the freeholder – isn’t a fair valuation.
If freeholder and leaseholder can’t agree, valuations are decided by a tribunal.
A request for comment by the BBC from Mr Kinsella’s freeholder, Fable Estates, received no response.