This article has been written by Linz Darlington, managing director of Homehold which offer an end-to-end lease extension service with integrated lease extension solicitors.

The Leasehold and Freehold Reform Bill is making quick progress through parliament. Since being announced in the King’s Speech on 7 November, it’s had its first two readings in the Commons and its line-by-line scrutiny by the Public Bill Committee.

The next date in the diary is the 27 February, where the revised bill will be reported back to the Commons and be read for the third time.

Keeping on top of the legislative process – proposed changes to the bill, debates and written submission from interested parties – is a mammoth task. What is clear, however, is just how divisive and contentious this bill is.

One of the headline aims of the bill is to abolish Marriage Value. In short, this would make it much cheaper for leaseholders with flats below 80 years to extend their leases. This pledge is also one of the most controversial.

What is Marriage Value?

When you do any lease extension (even when the lease is above 80 years) you must make a payment to the freeholder for their loss of the flat back at the end of the existing term, and the fact you will no longer have to pay ground rent. These are known respectively as the reversion and term payments.

But even if you add the cost of the term and reversion payments to the value of the flat with a short lease, it probably won’t total as much as what the flat would be worth with a long lease. Accordingly, when you do a lease extension you make a hypothetical profit. This profit known as “Marriage Value.”

Under the current law, where a lease is below 80 years, you must split the Marriage Value with your freeholder. This is set to change under the new law – and could save affected leaseholders many tens of thousands of pounds.

It’s my opinion that this change is not unfair on freeholders and well overdue (read more about this here), but unsurprisingly this is not a view shared the freehold community.

Can Marriage Value be abolished?

When the Government talks about “abolishing Marriage Value,” what they mean is that they’re going to abolish the requirement for the leaseholder to split the Marriage Value with the freeholder when they do a lease extension.

The freehold community argues that the reason that this is so unfair is that Marriage Value will still exist – they just won’t get their slice.

I am not so sure. Marriage Value only exists because leaseholders are prepared to pay so much less for a flat with a short lease than one with a long lease. The reason short lease flats are sold at such depressed prices is because the leaseholder must bear the uncertainty and delay of extending the lease, and bear the professional fees for both sides.

If you simplify the lease extension process and make it more equitable, then the value of flats with short leases will increase accordingly, and Marriage Value will be eroded.

Why do freeholders want to prevent the abolition of Marriage Value?

As excited as leaseholders are that their lease extension might be cheaper next year than it is today, there are losers on the opposite side of the same transaction.

In their submission to the Public Bill Committee, the Grosvenor Estate stated that the abolition of Marriage Value “would constitute an unconscionable one-off transfer of wealth to largely professional investors which does not improve genuine home ownership in any way.”

Clearly this isn’t an impartial perspective on the issue. For every pound that a leaseholder doesn’t have to pay, there is a pound less in their freeholder’s coffers.

The magnitude of these vested interests is clear: in their submission the freeholder Audbern Ltd stated that the loss to them alone would be about £25 million to £30 million.

What can they do about it?

From the submissions to the Public Bill Committee – both in writing and the oral evidence adduced – the freehold community is lobbying hard publicly to try and water down the bill as much as they can. We can only speculate to what extent this lobbying is also going on behind closed doors.

In many cases – again the submission from the Grosvenor Estate is a good example – they simply want to reinstate the requirement to pay Marriage Value.

Another large investor, the Alan Mattey Group, took a more measured view. They have suggested Marriage Value could be abolished for leases that will drop below 80 years in the future, but for leases already below 80 years nothing should change.

So far, there has been no amendment to the bill on Marriage Value and I don’t think there is appetite from the Conversative government for one.

The alternative approach available to freeholders is to make an argument to the European Court of Human Rights (ECHR) that the abolition of Marriage Value effects their legitimate property rights.

It is outside of my area of expertise to comment on to what extent that such an argument has merit, but fortunately a leading KC Catherine Callaghan, did write an opinion on this for the Law Commission.

She muses that Marriage Value does exist, in the sense that value of the flat will increase when the lease is extended. However, she also acknowledges that any Marriage Value only reflects the additional value to the leaseholder when the lease is extended, not a loss to the freeholder. She concludes by saying the argument would be “finely balanced.”

We hope that the Leasehold and Freehold Reform Bill will pass it’s third reading in the Commons at the end of the month, and its swift progress will continue into the Lords.

It will be interesting to see if it can make it through the parliamentary process by an Autumn General Election, and whether any of the provisions of the bill are later challenged through litigation.

If the bill doesn’t make it through by the election, it is anyone’s guess on when we’ll see it revitalised and when leaseholders will benefit.