The landscape of leasehold reform is shifting rapidly, with significant legal challenges currently affecting key proposals—particularly the abolition of marriage value and the government’s plans to set capitalisation and deferment rates. For flat owners, freeholders, and professionals alike, understanding these developments is vital for making informed decisions.
What’s at Stake?
- Marriage Value Abolition: The government has proposed abolishing marriage value—the additional value created when a lease is extended on leases with less than 80 years remaining. This change could dramatically reduce the cost of extending short leases for many flat owners. The key word though is ‘could’ as it may not (read on).
- Government-Set Capitalisation and Deferment Rates: There are also proposals for the government to set fixed rates for capitalisation (used for ground rent calculations) and deferment (used to value the landlord’s interest in the property). These rates have a significant impact on the overall premium paid for lease extensions and collective enfranchisement.
Current Legal Challenges
Both proposals are facing legal challenges in the courts. Freeholders and industry groups argue that abolishing marriage value and imposing government-set rates could breach property rights under UK and European law. They contend these changes may unfairly reduce compensation for freeholders and set a precedent for state intervention in private contracts.
On the other hand, leaseholder groups and reform advocates maintain that the current system is outdated and unfairly burdens flat owners—especially in London, where short leases are common and premiums can be prohibitive.
What Does This Mean for Flat Owners?
- Uncertainty: Until the courts reach a decision, the timing and details of these reforms remain uncertain. Leaseholders considering extending their lease or participating in collective enfranchisement should be aware that costs and processes may change.
- Potential Savings—But Not for All: If the reforms go ahead, many leaseholders with leases under 80 years could see substantial savings from the abolition of marriage value. However, this benefit may be eroded if the government also sets a lower deferment rate. A reduced deferment rate increases the value of the landlord’s reversionary interest, which can push up the premium payable—potentially offsetting or even outweighing the savings from abolishing marriage value.
- Implications for Longer Leases: For leases above 80 years (where marriage value does not currently apply), a lower deferment rate could actually increase the cost of lease extensions and collective enfranchisement for these leaseholders.
- Professional Advice Essential: Because the situation is evolving, it’s vital to seek up-to-date, expert advice before making decisions about your leasehold property.
How Websters Surveyors Can Help
Our team closely monitors developments in leasehold reform and the relevant court cases. We provide clear, practical guidance and expert valuations—helping you make the best decision for your circumstances, whether you’re extending a lease, buying the freehold, or simply want to understand your options.
For the latest advice on leasehold reform and what it means for your property, contact Websters Surveyors today.