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Uncovering the Marriage Value Scandal

"The more difficult it is to understand a decision, the easier it becomes for those in charge to push it through without question."

For over three decades, leaseholders across the UK may have unknowingly been victims of what now appears to be a systematic and deeply troubling exploitation, draining millions from their pockets through so-called “marriage value” on lease extensions. Disturbing evidence now points to a serious possibility that this mechanism, rooted in a fundamentally flawed calculation, has been knowingly misapplied, with no regard for fairness or transparency. This practice, far from serving any legitimate purpose, seems to have been transformed into a routine tool for financial extraction, a cloak for what may amount to institutionalised deceit. Hidden behind complex valuation processes, marriage value has been levied indiscriminately, a convenient means to exploit leaseholders under the guise of legal norms.

Now, with marriage value potentially on the brink of abolition, the need to scrutinise its legitimacy has never been more urgent. We must confront the disturbing question: Has marriage value, wielded under a thin veil of credibility, served as an orchestrated means to systematically enrich a select few at the expense of countless leaseholders, leaving behind decades of financial harm that demand accountability?

For years, the concept of marriage value has been central to lease extension and enfranchisement valuations under UK law. Under the Leasehold Reform, Housing and Urban Development Act 1993, it ensures a supposed fair split the highly debated increase in value gained when a leaseholder extends their lease or purchases the freehold, beyond the loss of Capitalised ground rent and loss of freeholder reversion. However, on closer inspection, marriage value creates a circular logic that unfairly benefits freeholders at the expense of leaseholders. In situations where the leaseholder is already compensating the freeholder for the loss of reversion, adding marriage value to the premium inflates the cost, creating an unfair dynamic.

I urge any leasehold enfranchisement surveyor to read the length of this article and contact me for comment if they have an opposing view.

A lease extension premium is made up of three main components:

• (1) Ground rent compensation
• (2) Loss of freehold reversion value
• (3) Marriage value

Ground rent compensation refers to the amount the freeholder loses as they no longer receive ground rent payments from the leaseholder once the lease is extended. The loss of freehold reversion value represents the reduction in the freeholder's asset value due to having to wait longer to regain possession of the property.

As this article will demonstrate, the issue lies not with considering the marriage value itself, but with the significant flaws in how it is calculated.

What Is Marriage Value?

We first need to consider exactly what is 'marriage value' as a general term and also what was the intention of Parliament when including it as an additional element in the LRHUDA 1993 Act.

Marriage value as a general definition

Outside of the leasehold system, it refers to the financial uplift that occurs when two or more separate assets or interests are combined, resulting in a total value greater than the sum of the individual parts. It's a common concept in property, mergers, and acquisitions but can apply in various fields where combining assets creates synergy or enhanced value.

I've tried to break this down:

Value of Parts Individually: Each separate interest or asset has its own intrinsic value when evaluated in isolation. For example, imagine two adjacent plots of land, each valued at £100,000 based on their individual characteristics like size, location, and current use.

Value When Combined: When these two plots of land are merged, they might collectively become more valuable than their individual parts. Together, they could offer opportunities that were not available when separate, such as the possibility to develop a larger building, gain access to better facilities, or create efficiencies. After the combination, the new value might be £210,000, even though the initial value of the two parts was £200,000 (£100,000 each).

The Uplift – Marriage Value: The increase from £200,000 (the sum of the individual parts) to £210,000 (the combined value) is £10,000. This extra £10,000 is the marriage value, the financial gain that arises specifically because of the synergy or enhanced potential created by combining the assets.

In a leasehold enfranchisement context, this concept of marriage value arises when a leaseholder buys the freehold. The combined interest (leasehold and freehold) creates a value that exceeds what the leaseholder had before (just the leasehold). The difference between these values represents the marriage value, which is shared between the leaseholder and the freeholder. Possibly this marriage value also exists on a lease extensions, despite there being no 'combined interests' of the freehold and leasehold title - but we will get to that.

In general terms, marriage value reflects the principle that certain assets are worth more together than they are separately.

Parliaments definition of marriage value in the context of leasehold enfranchisement

We must look to 'Hansard' - a public record of everything ever spoken in parliament. Let's go back to the early 90's (pre the 1993 Act) to a time when Parliament was debating the proposed new Act, specifically, their definition of marriage value at the time. Here are a few extracts from Hansard of what was said that draw light on what their intention and meaning behind marriage value was:

Here are a few quotes from the document regarding the definition and explanation of marriage value:

• Definition of Marriage Value: "In the context of the Bill, marriage value should be seen as the value released or created on the merger of the freehold and leasehold interest. That is a windfall profit, and I feel perfectly at ease with that phrase. It is a profit to be shared between the parties."
• Further Explanation: "Marriage value is the difference between the aggregate of the values of the freehold and leasehold interests before and after enfranchisement. In other words, it represents the increase in value when the freehold and the leasehold come under the same control."
• Application for Flats / lease extensions: "Although marriage value for flats is notional, there is a real increase in value as interests are brought under the same control."
Source: Hansard Source: Hansard

These passages provide a clear definition and context for marriage value, particularly in relation to the enfranchisement of properties. They also appear to accord to the general definition of marriage value, as described earlier in this article.

The Government's current definition of marriage value

Lease-Advice.org, a charitable (government funded) department advising leaseholders, define marriage value as "the increase in the value of the property following the completion of the lease extension, reflecting the additional market value of the longer lease. In that this potential ‘profit’ only arises from the landlord’s obligation to grant the new lease, the legislation requires that it be shared equally between the parties.". This is slightly different to what Hansard shows the intention to be, so we are already seeing some inconsistencies.

Professionals definition of marriage value

Beckett and Kay are a specialist firm of Chartered Surveyors with a particular focus on landlord and tenant valuation issues. They define marriage value on their website:

This is more in line with the intention of the 1993 Act and Hansard quotes. When the freeholder obtains the leasehold / flat after the term it expires, owning both of them together is worth 'slightly more' than the sum of their parts. However there are clearly some inconsistencies between what professionals believe marriage value to truly mean.

The definition of marriage value within the statute

So let's now go to statute - the Leasehold Reform Housing and Urban Development Act 1993.

Schedule 13, Part II of the 1993 Act gives a clear definition:

MV = V_Tnew + V_Lnew) - (V_Told + V_Lold)

Landlord's Share of Marriage Value is half of this:

LSMV = 0.50 × MV

For non mathematical readers: The marriage value is calculated by subtracting the combined values of the tenant’s, landlord’s, and any intermediate leasehold interests after the new lease is granted from their combined values before the new lease is granted, with the landlord receiving 50% of the resulting amount.

So what is the problem with marriage value?

If marriage value is meant to reflect only a slight increase in the overall value of combining the freehold and leasehold interests under one owner, compared to their individual values under separate ownership, then it raises a serious question: why are leaseholders being required to pay such large sums in marriage value compensation? This seems to go against what Parliament discussed in 1993 and the rationale behind introducing marriage value.

Some MPs even argued that marriage value does not exist for individual flats at all but should instead be reserved for houses or Collective Enfranchisement where the freeholder owns all of the flats. Their view was that marriage value only becomes significant when an entire block of flats or a house changes hands, as the financial uplift in those cases is more substantial. Owning both the Freehold and Leasehold under one name could arguably be worth more than it's sum of parts. For individual flats, however, the benefit is far less clear, raising concerns about fairness in the compensation process. It’s clear that in such cases, any marriage value should only result in a small amount, if anything at all! There is no combining of interests on a lease extension.

However it could be argued that when a freeholder grants an extension, they are losing their ability to gain control of both the freehold and leasehold at some point in the future (after the unexpired term). Gaining control could allegedly add more value to the sum of the two parts being under separate ownership, therefore marriage value compensated the freeholder for this loss.

Real Life Figures of marriage Value

Let's look at some real life common examples of marriage value calculations as a point of reference to see if those figures look reasonable.

• Flat value £500k
• Nil ground rent / 75 years unexpired term
• Loss of freehold reversion - £12,700
• 50% of marriage value - £25,100
• Total Premium - £37,800

In this example, how has it become that the marriage value is double the freeholder's true financial loss of freehold reversion? Can you plausibly classify two-thirds of the entire premium being a 'slight increase' or 'uplift' in value? does this accord with Hansard's quote mentioned earlier... "marriage value is no tional [sic] for flats".

• Flat value £200k
• Nil ground rent / 62 years unexpired term
• Loss of freehold reversion - £24,000
• 50% of marriage value - £39,000
• Total Premium - £63,000

Again, the marriage value consists of almost two-thirds of the entire premium and 62% more than the freeholder's actual financial loss.

The maths behind marriage value

Reminding ourselves of the equation used to calculate marriage value:

MV = V_Tnew + V_Lnew) - (V_Told + V_Lold)

Let's expand that into what it really means, and how valuers plug in the figures:

MV = (Long lease value of the flat + Landlord interest after the extension) - (Short lease value of the flat + Loss of freehold reversion + Capitalised ground rent)

The Landlord's interest after the extension is practically neglible, so let's ignore it for simplicity:

MV =
+ (Long lease value of the flat)
- (Short lease value of the flat
+ Loss of freehold reversion
+ Capitalised ground rent)

All these variables are easy to establish, with the exception of one, the Short lease value of the flat.

How the tribunals calculate the short lease / unextended lease value

Tribunals and valuers almost always use a relativity graph to determine the Short lease value of the flat. Relativity is the % different in the unextended price versus the extended price of a flat. The graph used is based on decisions in the case of Zucconi and the case of Deritend Investments. It is based on data that compares the sold prices of flats with short leases to their expected prices with long leases. Unless there is real-world evidence to suggest otherwise, this chart is consistently used to calculate the flat’s unextended short lease value, allowing the equation to be completed. For example, a 70-year lease has a relativity of 84.66%, meaning a flat valued at £200,000 with a long lease would be worth £169,320 with only 70 years remaining.

How the unextended lease value SHOULD be calculated

Let’s say a flat is worth £200,000 after a lease extension. Before the extension, theoretically its value should be £200,000 minus the compensation to the freeholder for the loss of reversion, and minus the ground rent compensation, plus any potential uplift of 'combining interests' of the freehold and leasehold together.

For a flat with 70 years remaining, deferring the freeholder’s right to reclaim the lease by another 90 years could cost £3,250. Additionally, there is the loss of capitalised ground rent, say £10,000. These are accounted for in the marriage value calculations.

HOWEVER, what is not accounted for are additional costs that the leaseholder must cover:

• Both their own and the freeholder’s legal fees, which could total £6,000, potentially rising to £15,000 if tribunal hearings are involved.
• Risks such as dealing with a difficult freeholder, for which it’s reasonable to deduct another 2-3% from the extended price to reflect these uncertainties.
• Entering the unknown world of leasehold enfranchisement - which for a layman leaseholder is a daunting task. It’s reasonable to deduct another 2-3% from the extended price to reflect these uncertainties.

Factoring in all these costs, totaling £30,250, the unextended price would be approximately £169,750, or 85% of the extended value (indicating a 15% reduction in value due to the 70-year lease).

Marriage Value is Being Miscalculated

As we’ve seen, there is a clear issue with the system. Both methodologies lead the tribunal to a relativity rate where a 70-year lease is valued at around 85% of a flat with an extended lease, reflecting real-life scenarios. However, the tribunal overlooks a crucial aspect: the leaseholder not only has to cover both their own and the freeholder’s legal fees, but may also face excessive tribunal costs and the significant risks of dealing with a difficult freeholder or navigating legal uncertainties. For a leaseholder, a lease extension is filled with potential pitfalls. So why are these important factors excluded from relativity rates?

Of course the Zucconi relativity rate shows a lower value for a short lease, because it is based on real-world data from hundreds of cases. It reflects the actual costs faced by leaseholders who need to extend their lease, including loss of freehold reversion and ground rent compensation, but also the risks and uncertainties they face in the process. However, valuers assume that they only reflect the loss of reversion, loss of ground rent and an 'uplift' of combining both interests - wrongfully in my opinion.

Ask yourself this: If you were buying a flat with an unextended lease, would you pay the value of an extended lease, less the ground rent compensation and the loss of freehold reversion? Of course not. You would factor in legal fees, valuation costs, tribunal risks, and uncertainty. This is why relativity graphs or real-world data should not be used for calculating marriage value.

The tribunal’s approach overlooks these very real expenses and risks when calculating relativity. The result? The leaseholder ends up paying twice, the freeholder gains twice. Leaseholders are forced to cover the freeholder's costs and enter the unknown, which drives down the value of the unextended lease and leads to a lower relativity rate, ultimately inflating the marriage value the leaseholder has to pay. The fact that a leaseholder has to pay the freeholder's costs directly causes the marriage value to increase, due to relativity rates ignoring them. Quite frankly this is absurd

Relativity is the Trojan Horse

Relativity rates in lease extensions appear to be a Trojan horse for freeholders to extract higher premiums under the guise of fairness. These rates are a deceptive mechanism that, while appearing to calculate the value of a flat with a short lease versus one with a long lease, actually hide a major flaw: the true cost to the leaseholder in a lease extension (on top of ground rent and freeholder reversion compensation) is disregarded.

Tribunals rely heavily on relativity graphs and real world examples to compare the price of flats with short leases to those with long leases, ostensibly providing a basis for determining the unextended lease value. However, they seem to be ignoring critical real-world costs that a leaseholder faces when extending a lease.

The real injustice lies in how the system allows freeholders to capitalise on this oversight. The true costs of lease extensions go beyond simple deferment of reversion rights; they encompass legal, procedural, and financial risks that should reduce the value of an unextended lease significantly. Instead, relativity rates ignore these factors, presenting an incomplete picture that drives up marriage value and leaves leaseholders with a financial burden far greater than justified. Is this an oversight or is it a systematic method that freeholders exploit, making leaseholders pay more than their fair share while presenting it as a fair calculation? Reading through countless tribunal and court of appeal cases, valuers acting on behalf of leaseholders have never raised this argument on relativity rates.

How marriage value should be reformed

If I were a lawmaker tasked with designing a fair system from scratch for lease extensions, while balancing both the interests of landlords and tenants, I would certainly consider changes to the current calculations to address some of the concerns discussed. The goal would be to ensure that both parties are fairly compensated, while recognising the financial and legal burdens borne by tenants during the process.

Key Changes I Would Consider:

1. Deducting Tenant’s Expected Legal Fees and Costs from Marriage Value:

Rationale: The tenant incurs significant costs in the lease extension process, including legal and valuation fees, which directly contribute to increasing the property’s value by securing a longer lease which relativity graphs and real world evidence don't account for. Since these costs are essential for realising the uplift in value, it would be fair for the tenant to deduct these expenses from the marriage value, ensuring that the landlord’s share is calculated after accounting for the tenant’s financial outlay.

Effect: This would prevent the landlord from benefiting from the tenant’s expenses. The tenant would effectively reduce the landlord’s share of the marriage value by the amount the tenant has spent on legal and valuation fees, making the process more equitable for tenants.

2. Addressing Uncertainty:
While it’s harder to quantify, I would consider introducing a provision to account for uncertainty, such as the time and effort involved in negotiating the lease extension or the risk of going to a tribunal. This could be done by:

Introducing a Standard Deduction: A standard deduction could be applied to the marriage value or the lease extension premium to reflect the uncertainty that tenants face when extending a lease.

Apply a fixed % for marriage value

Effect: We know the intention of MPs from Hansard in 1993 that marriage value was supposed to be a nominal amount. Take away the relativity graphs (which we've covered above - fail to take into account other factors) and apply a standard percentage of say 1 or 2%.

3. Making marriage value only applicable to Collective Enfranchisement:
As discussed previously, there is no combining of interest on lease extension.

These changes would create a fairer system that acknowledges the financial and procedural burdens tenants face in lease extensions, while still ensuring landlords are adequately compensated for their loss of freehold reversion and the value of their interest. The aim is to achieve a balance that respects both parties' contributions to the process, particularly in terms of the tenant's costs and legal efforts that currently go unaccounted for in the marriage value calculation.

The Second Issue - Merging of interests

Going back to the 1993 Hansard quote mentioned earlier from Lord Coleraine:

"Marriage value should be seen as the value released or created on the merger of the freehold and leasehold interest. That is a windfall profit... to be shared between the parties. In many cases, the marriage value can be found by deducting the sum of the values of the existing freehold and leasehold interest from the value of the merged interest which will be created on enfranchisement"

Unlike buying the freehold, on completion of a lease extension, where is the merger between a leasehold and freehold title? There isn't.

Another quote from Hansard in 1993 (Lord Strathclyde) may help answer this:

Amendments Nos. 72 and 73 seek to change our definition of marriage value to an actual merging of interests. I have to say that this is a nonsense in valuation terms. For houses there is a merging of interests because the former tenant will become the freeholder. For flats there is no such merging, the freehold and leasehold interests will remain separate. However, although marriage value for flats is notional there is a real increase in value as interests are brought under the same control. Because the interests are not merged it was necessary that we define the term. That is why we have attributed marriage value for flats to the ability of participating tenants after enfranchisement to grant themselves new leases for little or no premium.

This quote claims that marriage value for flats is "notional," suggesting that even though the freehold and leasehold interests do not merge, there is still an increase in value because tenants gain control over the lease. However, this reasoning is flawed. The merging of interests that creates genuine financial uplift occurs only during Collective Enfranchisement, when the freeholder's interest is fully absorbed by all of the leaseholders. A lease extension alone does not create this merging of interests; the freehold and leasehold remain separate entities. The claim that the notional increase in value should result in substantial marriage value compensation during a lease extension is incorrect, any such uplift should be dealt with only during a Collective Enfranchisement claim, where the actual merger takes place, at a future date.

Furthermore, the assumption in this quote presupposes that leaseholders will eventually pursue Collective Enfranchisement, but this is speculative at best. Many leaseholders extend their leases without any intention of purchasing the freehold, and it is unjust to burden them with marriage value compensation as though they were merging the interests. Additionally, Collective Enfranchisement involves significant legal and valuation costs, which the quote conveniently overlooks. These costs directly impact the uplift in value and should be factored in separately during a Collective Enfranchisement claim, not during a lease extension where no such merger occurs. Therefore, the rationale behind attributing marriage value in lease extensions for flats is based on assumptions that are neither realistic nor fair, yet the 1993 Act has been constructed upon these flawed premises.

Even if Lord Strathclyde’s quote made logical sense, the concept of marriage value for flats has been defined as 'notional.' The term 'notional' means something that exists in theory rather than in reality, it's an assumed value rather than an actual, tangible one. In this context, 'notional' implies that the increase in value from the supposed merging of interests in flats is speculative and hypothetical, rather than based on any real or measurable change in the ownership structure. In practical terms, nothing physically merges between the freehold and leasehold during a lease extension, so the value increase is purely conceptual.

No Act Rights / Act Rights

Some argue that the "increase in value" is a direct result of the 1993 Acts existance - according to the Hansard quote mentioned earlier; "In that this potential ‘profit’ only arises from the landlord’s obligation to grant the new lease". Freeholders are being compensated in addition to their loss of reversion, with marriage value, simply because the right to extend exists.

Clearly the property value increases as a result of the extension, but this should in theory be equal to the loss of the landlord's right to take the lease for a further 90 years on top of the current unexpireed term, so what is this additional "profit" and does it really exist? How many leasehold enfranchisement practitioners have dug deep to consider what this really means and if the colossal amounts charged in marriage value really equal this alleged uplift?

Real life Example

Imagine a flat worth £600,000 with 70 years left on the lease. After 70 years, the freeholder would take the flat back. If you extend the lease by 90 years, the freeholder can't take the flat back for 160 years (70 + 90). The question is: what’s the value to the freeholder of getting the flat back now versus waiting another 160 years? That would seem to be the true loss to the freeholder.

In simple terms: if the freeholder were to get the flat today, it would be worth £600,000. But since they’ll only get it in 160 years, its value to them today is much less. The deferment rate helps us figure out how much less.

Doing the maths, using a standard 5% deferment rate, with the accounting rules of 'Years Purchase' and 'Present Value'; the loss to the freeholder is £19,475. This is the difference in value between the freeholder getting the lease back in 160 years, as opposed to 70 years. If the leaseholder chose NOT to extend their lease, letting it expire in 70 years, then the freeholder is sitting on £19,475 more capital in their books now, than they would be if the leaseholder did extend. So the payment of £19,475 compensates the freeholder to make both parties equal.

Despite the compensation described above, the law gives freeholders the right to charge marriage value in addition to the freehold loss. The argument being that the 1993 Act 'right to extend' increases the value of the flat, and the freeholder should get at least 50% of that increase in value. The mere right of being able to extend a lease rather than letting it expire results in an uplift on the value of the flat, on the idea that a flat that can never be extended (unenfranchiseable) is surpressed in value as a result of that.. Therefore, we can say marriage value is charged on leaseholders as a direct result of the right to extend under the 1993 Act.

Is a flat really worth more with the right to extend under the 1993 Act, or was the value suppressed as a result of having no right to extend (pre-1993 Act rights)? I would argue the latter, meaning that there is no uplift, but instead a reinstatement of the true value.

With lease extensions, from a purely mathematical and accounting standpoint, it makes no sense that a leaseholder should pay more than the freeholder’s loss of reversion unless there is clear evidence that combining the freehold and lesehold under one interest / one owner would create an uplift. We know from Hansard comments that there was a debate as to whether there is in fact any uplift uplift at all (particularly with lease extensions where there is no merging of interests), with it being described as 'notional', but yet significant sums are paid in marriage value.

Clearly flats were suppressed in value pre-1993 by the fact that there were no rights to extend. Savills Research produced a graph of "unenfranchisable relativity" - i.e. the sold value of a flat with an unextended lease and compared it to its predicted long lease value. However, this was based on a sample size of only 9 flats, by an organisation that mostly represents freeholders, not leaseholders. Has anyone questioned the reliability of this data? More importantly:

why has nobody suggested that the "uplift" isn't actually that, but instead a result of the value no longer being supressed now that the lease is enfranchisable (capable of bienig extended under the 1993 Act). This would make more sense.

The 9 cases presented by Savills in this graph take no account of the legal fees and uncertainties of the enfranchisement process faced by the leaseholders at the time. These are crucial components that should be considered when looking at relativity percentages.

Source: Leasehold Enfranchisement Analysis of Relativity (Savills World Research, June 2016)

The left chart represents the Savills chart, which is often relied upon for relativity, though it is based on a limited sample size of just nine data points. The right chart illustrates the range of potential trendlines that could be applied to such a small dataset. It raises important questions about how the Savills trendline was selected, the choice of transactional data, and whether any potential conflicts of interest were disclosed.

If marriage value exists solely as a result of transitioning from No Act Rights to Act Rights (the ability to extend a lease post-1993), then is it truly plausible that the amount is so substantial? Consider the example of a £600k flat with 79 years unexpired term; marriage value is calculated £70,000 (albeit halved to £35,000). Is it really plausible that the 1993 Act's existance increases a combined leasehold and freehold value by £70,000? Even if it does, wouldn't it be more plausible to beleive that the value was previously supressed as a result of having no right to extend. This would seem more logical.

Consider the chart I have prepared below showing the full extent of applicable marriage value on a £600k flat, depending on how many years remain on the lease:

It's clear that the standardised marriage calculations, and the collosal figures it arrives at, do not represent the true intentions of the law makers of the 1993 Act, nor do they reflect the accepted definition of marriage value (an uplift in value as a result of combining two interests into one ownership).

The core issue with marriage value is that it essentially acts as a double charge on leaseholders, ignoring outside factors that influence relativity rates, where the reality is that the freeholder's true loss is the capitalisation of ground rent and diminishing freehold reversion, with the possible exception of a nominal (at best) uplift of combined interests.

The Leasehold and Freehold Reform Act

As the government moves towards abolishing marriage value under leasehold reform, it faces inevitable legal challenges from freeholders who have long relied on this concept to justify inflated lease extension premiums. Understanding the origins of marriage value and its inclusion in the 1993 Act is critical to addressing these disputes. This article has revealed that the foundations of marriage value calculations were flawed from the start, overlooked due to their complexity, and have resulted in unfair costs for leaseholders. By scrutinising the rationale behind marriage value and its misapplication, we gain insight into why reform is necessary and how the concept was, quite simply, lost in translation from the outset.