The Leasehold and Freehold Reform Bill, which was introduced on 23 January 2024, has proposed significant changes related to leasehold properties in the UK. One of the key provisions pertains to the abolition of marriage value.
Here are the relevant details:
- What Is Marriage Value?
- Marriage value refers to the synergy created when merging the freeholder and leaseholder interests during lease extension or enfranchisement.
- Under existing legislation (dating from 1993), marriage value is shared equally between the freeholder and leaseholder when completing a lease extension.
- It applies specifically to leaseholds with less than 80 years remaining.
- Proposed Change: Abolition of Marriage Value
- The Leasehold and Freehold Reform Bill aims to remove marriage value from the calculation of the premium for lease extensions or enfranchisement.
- This change will apply to leaseholds with fewer than 80 years remaining.
- Effectively, any lease with more than 80 years remaining at the time the Bill passes into law will not have marriage value included in the premium calculation.
- Impact and Scope
- The government estimates that there are approximately 5.2 million leasehold properties in the UK.
- However, the abolition of marriage value will initially relate to fewer than one in ten leaseholders, as only around 400,000 properties have leases under 80 years.
In summary, the government’s current position is to remove marriage value from the calculation, making lease extensions and enfranchisement potentially fairer, cheaper, and more transparent for leaseholders.
However, if premiums are reduced for lease extensions and enfranchisement prices reduced Freeholders have expressed various opinions regarding the compensation claims and the transfer of wealth resulting from the proposed Leasehold and Freehold Reform Bill.
Let’s delve into some of these perspectives:
- Peter Ballard’s Submission:
- Peter Ballard, a freeholder, submitted evidence to the Leasehold and Freehold Reform Bill Public Bill Committee.
- He argues that the primary purpose of the Bill is to expropriate wealth from freeholders and transfer it to leaseholders.
- Ballard’s company holds a ground rent portfolio of approximately 57,000 property interests, generating £3.2 million annually.
- He believes that the transfer of wealth will make freeholders poorer while benefiting leaseholders, especially those in London and the south-east.
- Ballard intends to pursue remedies under the Human Rights Act 1988 to protect his rights.
- He contends that the Bill infringes on freeholders’ rights under Article 1 of the First Protocol (A1P1) of the European Convention on Human Rights (ECHR).
- Specific provisions that he believes infringe on freeholders’ rights include the removal of marriage value, restrictions on ground rent, and limitations on rent reviews.
- Compensation and Market Values:
- Freeholders argue that unless there is a compelling public policy objective, the deprivation of their assets (such as ground rents) should result in fair compensation.
- They emphasize that the compensation payable to freeholders should be set at close to, if not actually at, market values.
- The transfer of wealth from freeholders to leaseholders should be carefully considered to ensure fairness and avoid undue hardship.
In summary, freeholders are concerned about the impact of the proposed reforms on their assets and rights. While the Bill aims to address leasehold issues, striking a balance between the interests of freeholders and leaseholders remains a complex challenge to get through Parliament and if it does the Government will face a major Compensation claim and action under Article 1 (as above).