How to Calculate Marriage Value in Leasehold: A Complete Guide

When extending the lease of a property, understanding how to calculate marriage value in leasehold is crucial. Marriage value represents the increase in a property’s value after extending a lease, shared between the leaseholder and the freeholder. This concept is particularly important for properties with short leases (below 80 years), as it significantly impacts the cost of lease extension.

In this guide, we’ll explore the marriage value calculation, key factors affecting it, and how to determine the cost of a lease extension.

1. What Is Marriage Value in Leasehold?

Marriage value refers to the increase in a property’s market value after extending its lease. This occurs because a longer lease enhances the property’s marketability, making it more attractive to buyers and mortgage lenders.

According to The Leasehold Reform, Housing and Urban Development Act 1993, when a lease falls below 80 years, the freeholder is entitled to 50% of the marriage value when the lease is extended. This makes lease extension costs higher for shorter leases.

2. Why Does Marriage Value Matter?

• Impacts Lease Extension Costs – The shorter the lease, the higher the marriage value, increasing the premium payable.
• Affects Property Marketability – Properties with longer leases have higher resale values and better mortgage options.
• Legal Requirement – If the lease is under 80 years, the leaseholder must share the marriage value with the freeholder.

3. How to Calculate Marriage Value in Leasehold?

The marriage value is calculated as the difference between the property’s value before and after the lease extension. It follows this formula:

Marriage Value Formula

Marriage Value=(Extended Lease Value−Short Lease Value)−(Freeholder’s Interest +Leaseholder’s Interest)Marriage\ Value = (Extended\ Lease\ Value – Short\ Lease\ Value) – (Freeholder’s\ Interest\ + Leaseholder’s\ Interest)Marriage Value=(Extended Lease Value−Short Lease Value)−(Freeholder’s Interest +Leaseholder’s Interest)

Since the law requires that marriage value is split 50/50 between the leaseholder and freeholder, the leaseholder pays half of the calculated marriage value as part of the lease extension premium.

Step-by-Step Calculation

1. Determine the property’s current market value with the short lease.
2. Estimate the property’s value after lease extension (typically adding 90 years to the remaining lease).
3. Calculate the freeholder’s interest (future ground rent + reversionary interest).
4. Subtract the freeholder’s interest from the increased property value.
5. Divide the resulting marriage value by 2, as the leaseholder must pay 50% of this amount to the freeholder.

4. Example Calculation of Marriage Value

Let’s say:

• Current property value with short lease: £200,000
• Estimated property value after lease extension: £250,000
• Freeholder’s interest (ground rent & reversionary interest): £30,000

Using the formula:

Marriage Value=(£250,000−£200,000)−£30,000Marriage\ Value = (£250,000 – £200,000) – £30,000Marriage Value=(£250,000−£200,000)−£30,000 =£50,000−£30,000=£20,000= £50,000 – £30,000 = £20,000=£50,000−£30,000=£20,000

Since the leaseholder pays 50% of the marriage value:

Leaseholder’sPayment=£20,000÷2=£10,000Leaseholder’s Payment = £20,000 \div 2 = £10,000Leaseholder’sPayment=£20,000÷2=£10,000

This £10,000 is added to other costs (e.g., ground rent compensation, legal fees) to determine the total lease extension premium.

Also, learn more about How to Calculate a Lease Extension Valuation

5. Factors Affecting Marriage Value Calculation

Several factors influence how to calculate marriage value in leasehold, including:

• Remaining Lease Length – The shorter the lease, the higher the marriage value.
• Property Market Value – Higher-valued properties generate greater marriage value.
• Ground Rent Terms – Future ground rent obligations impact the freeholder’s interest.
• Location & Market Trends – Local property demand affects valuation.

6. How to Reduce Marriage Value Costs?

• Extend the Lease Before It Falls Below 80 Years – No marriage value applies for leases above 80 years, significantly reducing costs.
• Negotiate with the Freeholder – Some freeholders may accept a lower premium if negotiated properly.
• Use a Professional Lease Extension Valuation – A surveyor or lease extension specialist can help determine the best possible terms.

7. Legal Aspects of Marriage Value in Lease Extensions

• Under The Leasehold Reform Act 1993, leaseholders have a legal right to a 90-year extension at a fair valuation.
• If disputes arise, leaseholders can take the case to the First-tier Tribunal (Property Chamber) for a valuation resolution.
• Engaging a chartered surveyor and solicitor ensures fair pricing and compliance with legal procedures.

Conclusion

Understanding how to calculate marriage value in leasehold is essential for leaseholders planning an extension. Since marriage value significantly increases costs once a lease falls below 80 years, acting early can save thousands. By knowing the calculation method, factors influencing valuation, and legal implications, leaseholders can make informed decisions and negotiate better lease extension terms.