Marriage Value - some thoughts

  • Filter
  • Time
  • Show
Clear All
new posts

    Marriage Value - some thoughts

    In a perfectly efficient world, I would advance the theory that marriage value would not exist.

    In that world we would assume that buyers could calculate the following two sums. Firstly, the capitalised value of the ground rent and secondly the value of the reversion and there were no transaction costs then the value of a property with a short lease as opposed to a long lease would be the sum of those two figures. We will also assume that at the end of the tenancy they have the right to remain in the property paying a full rack rent.

    That last criteria being important as of course the disruption and stress of moving would make someone pay more than the two figures above.

    A buyer faced with a short lease as opposed to a long lease would be indifferent between the two if the value of the ground rent they have to pay is correctly valued and the value of the reversion is also correctly valued

    In our market, an imperfect market, if marriage value exists it is because the TWO sums I have outlined above produce a figure less than the differential between the value of a property with a long lease and a value for a property with a short lease.

    Therefore, this is the evidence that the deferment rate and the capitalisation rates are not correctly set and both need to be lowered.

    Let’s us take a flat worth say £250,000 with a lease term of 99 years from 25 March 1994 - 72 years with a ground rent of £100 per annum doubling every 33 years. Following the decision in Iron Hawk

    The capitalised value of the ground rent at 6% is £2,923

    The value of the reversion discounted at 5% is £7,381

    The marriage value is £9,228

    The relativity proposes that the flat ordinarily worth £250,000 with a very long lease in a no act world is worth £221,239 with a short lease a difference of £28,761

    Now with regard to the rent with the collapse in interest rates a rental stream such as this should really be discounted at about 4.5% in our perfect world with no transactions costs. If that were the case the ground rent would be worth £4,031.

    Therefore, the reversion in this perfect world would be £28,761 less £4,031 = £24,730. This would be achieved by discounting the reversion at 3.26% - a reduction from Sportelli of 1.74%

    So, to recap if the income was discounted at 4.5% and the reversion at 3.26% no marriage value would be created.

    Is the rate reduction of 1.74% from the seminal case of Sportelli unreasonable? I would say it is reasonable. In Sportelli in 2008 the risk free rate and the Government long term risk free rate set for personal injury claims (The Ogden Rate) was broadly in line at 2.25% to 2.5% . Today the Ogden rate stands at MINUS 0.25% a fall of some 2.5%. Therefore, to claim only 1.74% of the 2.5% is wholly reasonable

    The consequences of this would be that the value of the reversion would explode for lease above 80 years where marriage value did not form part of the equation

    The other point that comes out of this appraisal is that lessees only having to pay 50% of the marriage value were in fact gaining as there should have been paying a great deal more for the reversion and the capitalised value of the rent and the extent of the error in the two figures used amounts to the marriage value created.

    The collapse in interest rates has been responsible for significant one off rises in asset values and the impact on the reversion has come as a shock to many , however in dealing with the shock need to be reminded that the value of the property will have risen and so to would the value of any pension rights

Latest Activity


  • Reply to Freeholder/Agent Demanding Money for Repairs
    by eagle2
    It makes you wonder why any freeholder should comply with s20 at all. As you say, it can wait to see if any leaseholder challenges the costs. It does not even need to explain why it did not comply with s20, the only consideration appears to be whether or not the leaseholders suffered any financial prejudice,...
    23-10-2021, 06:34 AM
  • Freeholder/Agent Demanding Money for Repairs
    by SSLA91
    Hi all,

    Long time lurker of this forum and recent new member. Have always found the forum incredibly helpful so thank you! Have now got an issue with our freeholder that I could use some specific advice on (have tried searching for similar posts but to no avail).

    We have recently...
    20-10-2021, 20:28 PM
  • Section 20 notice
    by Starlane
    Hello I would welcome input on the following:
    Two roofs feed into a valley, the valley is in need of repair, this is a shared responsibility and therefore a shared cost. so how do we issue a section 20 notice when really we need the consent and agreement from two different buildings/landlords...
    22-10-2021, 19:09 PM
  • Reply to Section 20 notice
    by Starlane
    Hi Macromia thank you as always for your helpful and sensible input.. one building is saying one thing and another building the other, the usual chinese whispers so I took the bull by the horns and spoke to everyone and I am almost there apart from a Director who wants to do their own thing ( not being...
    22-10-2021, 20:57 PM
  • Share of freehold questions - confused
    by sixunforced
    Not sure if this is the right place for this query but anyway, I'm a first time buyer and have been searching for a property for like two years now (not continuously but on and off and obv covid halted my search for a while). I found a really nice 2 bedroom flat for under £320,000 in a block of around...
    18-11-2020, 21:19 PM
  • Reply to Share of freehold questions - confused
    by Starlane
    Agree thank you...
    22-10-2021, 20:52 PM
  • Reply to Section 20 notice
    by Macromia
    Assuming that the two freeholders have agreed that they will work together and share the costs, they jointly agree what needs to be communicated to the leaseholders and then each freeholder writes to the leaseholders in their building.
    22-10-2021, 20:16 PM
  • Freeholder threatening to cut water off
    by Disraeli-LLH
    I was hoping you would be able to help. We own a ground floor flat LLH(970 yrs remaining). The freeholder owns the house and lets the flat upstairs on an AST.

    The freeholder currently undertaking works including replumbing. We have been on a shared water supply and we connect through their...
    20-10-2021, 15:35 PM
  • Reply to Freeholder threatening to cut water off
    by Macromia
    This is possibly by far the most important consideration, in my opinion.
    If the OP's lease doesn't allow 'improvements' to be charged to service charges, the freeholder cannot require them to contribute anything towards the costs, and would therefore be something that they would have had no choice...
    22-10-2021, 20:08 PM
  • Reply to Freeholder/Agent Demanding Money for Repairs
    by Macromia

    Although when my freeholder applied for dispensation a while back (arguing that the proposed work had to be carried out as a matter of urgency) they were granted dispensation with the First Tier Tribunal commenting that the 2013 Supreme Court Case of Daejan versus Benson meant...
    22-10-2021, 19:51 PM