Marriage at 80

If so, you’re in luck. This is because the cost of your new lease will be appreciably less than for an equivalent flat held on a lease that has 80 years or less unexpired.

The Leasehold Reform, Housing and Urban Development Act 1993 provides flat owners with the right to a lease extension (new lease) of 90 years in addition to their existing lease length and at nil ground rent. This is subject to payment of a premium to compensate the landlord.

The premium payable covers the landlord’s loss of: ground rent; reversionary value; and if the unexpired term of the lease is 80 years or less, then a hefty chunk of additional compensation becomes payable too. This is known as “marriage value”.

“Marriage value” is the value released by the coalescence of the interests and is, in effect, the difference between the value of the newly extended lease minus the value of the landlord’s existing interest and the value of the flat on the existing lease. Any marriage value is split half-and-half between the landlord and you (the flat owner).

To illustrate the costly effect of “marriage value” on the lease extension premium, consider a one-bedroom flat in Prime Central London (PCL) with 80 years and one day left on the lease at a fixed ground rent of £100 per annum. If the notional long lease and share of freehold value is £650,000, then the statutory 90-year lease extension premium might be in the region of £15,000 plus costs.

One day later, when the lease length has fallen to 80 years, then marriage value is now payable. For the same one-bedroom flat, the lease extension premium would have doubled to approximately £30,000 plus costs.

It is savvy to obtain a lease extension at the earliest opportunity because typically, as the lease gets shorter, the cost increases too.

If your existing flat lease already has less than 80 years left to run, don’t panic. It is very common for flats in PCL to be owned on shorter leases.

Even with a far shorter unexpired term it is still prudent to invest in your leasehold property by extending your lease. A statutory 90-year lease extension will provide you with a more valuable interest, nil ground rent payments and long-term security of ownership. A flat held on an extended lease will fully benefit from a rising market, coupled with its marketability being enhanced.