Calculating Marriage Value: Understanding the Numbers Behind Lease Extensions
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If you’re a leasehold property owner considering a lease extension, you might have come across the term “Marriage Value.” This critical factor can significantly impact the cost of extending your lease and is essential to understand before entering into negotiations. In this blog, we’ll delve into the details of calculating Marriage Value, equipping you with the knowledge to make informed decisions about your property’s future.
What is Marriage Value?
Marriage Value refers to the increase in a property’s value that arises when its lease is extended. It represents the difference between the property’s worth with the current short lease and its higher value once the lease is extended. The concept stems from the notion that combining the leasehold interest (short lease) with the freehold interest (extended lease) creates additional value in the property.
Understanding the Calculation: A Simple Formula
Calculating Marriage Value involves a straightforward formula: Marriage Value = (Property Value with Extended Lease) – (Property Value with Current Lease)
In this equation, the “Property Value with Extended Lease” refers to the hypothetical market value of the property if the lease were extended to, for instance, 999 years. The “Property Value with Current Lease” is the property’s current market value with the remaining lease term.
Let’s illustrate the calculation with an example:
Suppose you own a leasehold property in Slough with a current market value of £400,000 and 70 years remaining on the lease. You are considering extending the lease to 999 years.
- Property Value with Current Lease: £400,000
- Property Value with Extended Lease: The surveyor estimates that with a 999-year lease, the property’s value would be £550,000.
Using the formula: Marriage Value = £550,000 – £400,000 = £150,000 In this scenario, the Marriage Value is £150,000.
Factors Influencing Marriage Value
Several factors influence the Marriage Value calculation, making each case unique:
- Lease Term Remaining: Generally, the shorter the remaining lease term, the higher the Marriage Value.
- Property Value: The market value of the property significantly impacts the Marriage Value. Properties with higher values tend to have higher Marriage Values.
- Ground Rent: The ground rent payable to the freeholder during the remaining lease term can affect the Marriage Value.
- Capitalization Rate: This rate reflects the yield a freeholder might expect from the ground rent income. A higher capitalization rate leads to a higher Marriage Value.
Professional Valuation: The Key to Accuracy
Calculating Marriage Value is not a DIY endeavour. It requires a qualified surveyor or valuer experienced in leasehold property to determine the most accurate figures. Engaging a professional is crucial, as an incorrect calculation could lead to costly mistakes during negotiations.
Minimizing Marriage Value Impact
While the Marriage Value calculation is subject to various factors, homeowners can take certain steps to minimize its impact:
- Start Early: Consider extending your lease while there is still a considerable lease term remaining, as this can reduce the Marriage Value.
- Negotiate Wisely: Work with a skilled Leasehold surveyor who can negotiate the best possible terms on your behalf, considering both the lease extension premium and Marriage Value.
Understanding Marriage values is paramount when embarking on a lease extension journey. By grasping the calculation process and the factors influencing it, you can make well-informed decisions that align with your financial goals. Seeking professional advice and support is critical to ensuring a smooth and successful lease extension, making the most of your leasehold property investment.