Midweek Money: Marriage breakdown

A ROW is expected to break out when the Government's consultation document on leasehold reform is sent out in November. The document is expected to amend or drop altogether the concept of "marriage value" - the sum landlords charge for the added value of owning the property and the land it stands on - in favour of a more even system.

Flat owners who plan to buy their freehold argue that marriage value should be abolished, as do those who want to extend their lease and are required to pay marriage value, though it is calculated differently. Marriage value is the outcome of a calculation whereby leaseholders are required to pay half the assumed increase in value of a property once its lease has been extended, or ownership of freehold has changed hands.

"Marriage value basically assesses the uplift in value of a lease or a freehold. This is the issue that brings the heat into the Leasehold Valuation Tribunals. It is difficult to calculate, open to subjective assessment and resented by leaseholders."

Mrs South calls for the valuation process to return to the simpler logic of the 1967 Act which did not include this concept at all. This will be one of the issues highlighted when leaseholders lobby Parliament on 24 November.

Neil Mulcock, who works with the Labour MP Barry Gardiner, chairman of the all-party group campaigning for leasehold reform, says: "It is unjust and unreasonable. We want the abolition of marriage value for flats."

Peter Haler, head of the Leasehold Advisory Service, who wrote a joint paper on the subject with the British Property Federation, argues that marriage value should stay. "Enfranchisement should be based on a fair market value recompense to the landlord, if the Government does away with marriage value. Otherwise I'm convinced it will be challenged through the European courts by big institutions and landlords."

The freeholder is currently able to apply for up to 100 per cent of the marriage value and is guaranteed a minimum of 50 per cent. He wants this to be set at a maximum of 50 per cent.

"Marriage value should only be applied where the length of the lease makes a market impact on the property which is generally 80 years and below. There's got to be a better way of working it out. It should be applied where it can be shown to have a real market effect on the value of a flat rather than being used as a premium for control of the freehold. Anything above that and there should be no marriage value."

Consultation paper proposals are expected to include the abolition of the "low rent test", which limits the right of enfranchisement to leaseholders who pay a low ground rent, and increasing the permitted non-residential maximum area in a block from 10 per cent of the total floor space - which means most leaseholders living in flats above shops do not qualify to buy the freehold of their home.

Proposals are also likely to include reducing the number of qualifying tenancies from two thirds to one half but, at the same time, to require the support of at least 40 per cent of all tenancies in the block for an application for enfranchisement.

Flat owners who decide against enfranchisement may be given the "right to manage" without having to prove fault with the existing managers. All that may be required is for at least 50 per cent of owners in the block to favour taking over management, providing an incentive to landlords and managing agents to carry out a better service.

The Government is believed to have acknowledged that none of the above will work effectively without strict regulation of managing agents and accountants, plus controls on the way leaseholders' money is handled. This realisation may give birth - at last - to a regulator with teeth. Flat owners who want to purchase collectively the freehold of their block or extend their leases may want to study the consultation document before acting.

Write to Karen Woolfson, Homebattles, c/o Nic Cicutti, The Independent, One Canada Square, Canary Wharf, London E14 5DL