Should I wait for marriage value to be abolished before extending my lease?

The question of whether to extend a lease now or wait for changes to the law is a complex one that is on the minds of many flat owners, particularly for leaseholders in areas with a high number of flats like Brighton and London. Marriage value forms the lions share of many lease extension premiums for leases under 80 years, and its understandable that many are holding out as long as they can in hope that it will be scrapped soon.

Each case is unique depending on the lease involved and your personal circumstances, however we aim to provide some useful points to bear in mind. When looking at this question it is important to note that some flat owners have waited since January 2021 (when the reforms where first announced) and have ended up having to serve a s.42 notice and pay a higher premium, due to a change in circumstances meaning they can no longer wait.

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What's the latest with leasehold reforms

The rules governing lease extensions are undergoing significant changes. however whilst the Leasehold and Freehold Reform Act 2024 was brought in last year, its full implementation is still some time away, and seems to be happening in increments, with some of the simpler changes having already been made law.

The government has expressed a commitment to expediting the process, but the reforms will be rolled out in stages, requiring further consultation and secondary legislation. Realistically, substantial changes to the lease extension process are unlikely to be fully realised before 2026.

Key considerations for Brighton and London leaseholders

For leaseholders in Brighton and London considering whether to extend their lease (which we have a leaseholders guide for here) or purchase their freehold now or wait, several key questions must be addressed:

1. Will the reforms make it cheaper to extend my lease?

The legal costs and premium implications of the reforms are a key concern for leaseholders. The reforms are primarily designed to benefit those with shorter leases most, particularly those below 80 years, and those facing high ground rents.

A key element of the reform package is the abolition of marriage value, a factor that significantly increases the cost of lease extensions for leases below 80 years. Additionally, the reforms aim to address the issue of escalating or doubling ground rents by introducing a cap in the calculation the premium payable to the freeholder, although the the precise details of the cap need to be ironed out.

If your lease is below 80 years, or if your ground rent exceeds 0.1% of the property's value, the reforms are highly likely to make a lease extension more affordable. The removal of marriage value and the ground rent cap will significantly reduce the premium. Note however that some valuation experts state that some lease extensions (those that have more than 80 years remaining) could cost more under the new rules and specific advice is needed in each case.

Also note that in all cases we expect the freeholders legal costs to be capped or not recoverable, which is a benefit that will apply to all, regardless of lease length.

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2. Could the reforms make a lease extension more expensive?

It is possible for some. While the overarching goal of the legislation is to make lease extensions and freehold purchases more accessible and affordable, it's essential to acknowledge that not all leaseholders will necessarily benefit in the same way and some could face a higher premium in theory(though should still save on landlords legal costs)

The reforms, while abolishing marriage value and removing the obligation to pay the freeholder's costs, do not explicitly define the "deferment and capitalisation rates" used to calculate lease extension and freehold purchase prices. These rates, to be determined at a later stage, play a crucial role in determining the premium. If these rates are set lower than the rates currently agreed upon by valuers, the cost of lease extensions could potentially increase (though we think it unlikely given that the whole idea of the reforms is to improve things for leaseholders, and not pump up the money received by freeholders).

Until these crucial rates are established, it remains uncertain whether the reforms will universally lower the cost of lease extensions.

3. Can I afford to wait for the reforms to be implemented?

Given the uncertainties surrounding the final form and impact of the reforms, providing a definitive answer on whether to extend a lease now or wait is nearly impossible and we would recommend taking advice on your particular circumstances, to understand the implications for you and your lease. Seeking professional advice from a qualified leasehold solicitor (rather than an estate agent or conveyancer) is strongly advised. These experts can provide personalised guidance based on individual circumstances and the specifics of your lease in Brighton, London or beyond.

For leaseholders with leases already below 80 years or high ground rents, waiting for the legislative changes is likely to be a tempting option provided other life circumstances do not get in the way (such as the need to move or remortgage in the meantime). The removal of marriage value and the ground rent cap offer significant potential cost savings.

However, it's equally important to recognise that waiting may not always be the most prudent strategy. Leasehold practitioners often advise considering a lease extension in certain situations, such as when a sale is anticipated within the next year or two, or when the lease term is between 80 and 82 years. Otherwise a lease that isn't impacted by marriage value will drop into that category, with no certainty that the secondary reform legislation will ever reach the statute books.

4. How does the length of my lease affect this?

The length of the lease is a critical factor in determining the best course of action.

Here's a breakdown of how different lease lengths might influence your decision:

• Below 80 years: waiting is generally recommended due to the anticipated benefits of abolishing marriage value, if that is an option. That is, if you can wait until potentially 2029.

  80 to 84 Years: extending the lease without waiting is advisable. Given the timeline for reform implementation (by 2029), waiting risks the lease falling below the crucial 80-year threshold, where marriage value becomes a factor. Leases in this group simply do not stand to gain as much as those with less than 80 years but could end up with a higher premium, because a change to the deferment rate could end up pushing up a premium in this category.

• Above 100 years: the decision becomes more nuanced. While the reforms may eventually reduce legal and valuation costs, they could also increase the premium payable to the freeholder. If the lease term is comfortably above 100 years, waiting to observe the final form of the reforms might be a viable option because in this case your legal and valuation costs will form a substantial part of the overall costs, and landlords costs are set to be removed. The property may also still be saleable with this length of lease.

• Ground rent above 0.1% of flat value: waiting is worth considering, as the ground rent cap, if applicable to your lease, could lead to substantial savings.

• Planning to move or remortgage: if you're considering moving or remortgaging and the current lease term is a potential obstacle, extending the lease is likely the best option. A shorter lease can significantly impact property value and mortgage availability.

  
  

In each case please do take proper advice, rather than relying on this post, which is intended as a rough guide based on over a decade of experience helping leaseholders.

Considerations for Brighton and London leaseholders

The information provided applies generally, but leaseholders in Brighton and London should also consider the unique characteristics of these markets. High property values in these areas mean that the financial implications of lease extensions and freehold purchases are particularly significant. Therefore, seeking expert advice tailored to the specific circumstances of your property in Brighton or London is even more crucial.

To wait for leasehold reforms or not

This question requires careful consideration of individual circumstances, lease terms, and potential future legislative changes allied with advise from a leasehold solicitor. While the anticipated reforms hold the promise of making lease extensions and freehold purchases more accessible, uncertainties remain on timings and who will benefit the most.

As ever, it is advisable to watch any announcements coming out of Westminster in 2025 which may move the needle in a particular direction for your chances of obtaining a cheaper lease extension.

Finally, if you prefer to take expert advice on matters affecting your property, you are in safe hands with Peppercorn Law, a genuine specialist firm that has unrivalled experienced in this area of law.