[2025] EWHC 2751 (Admin)

The valuation concept of marriage value applies much more widely than in the circumstances of enfranchisement claims. For example, two neighbouring areas of land put to the same use may be merged so as to achieve a more efficient or productive operation for that purpose. So, in Sportelli Lord Hoffmann referred at [2] to the sale of a small farm located in the middle of a much larger agricultural estate. Alternatively, a special bid may be made by a neighbour in order to change the use of adjoining premises and to operate them as an expansion of an existing business (such as the nursing home in Clay). In such cases, the interests in both of the properties merged may be freehold and so neither is a wasting asset in terms of tenure.

However, in the present context marriage value is used differently to describe the merger of two different property interests in the same property held by different owners. There is a further difference. One of those interests, the freehold reversion, is a permanent asset and the other, the long lease, is a wasting asset. The freehold reversion will become a freehold with vacant possession upon the expiration of the term of the lease, unless, of course, the lessee is able to, and does, enfranchise, or a voluntary transfer takes place.

This type of marriage value is not an intrinsic feature of the land itself as a unit of real property. It can only arise where a landowner or his predecessor in title has chosen to create a lease out of his interest and thereby assume landlord status. Even if he does so, marriage value cannot be realised if the tenant is not in the market to acquire the reversion. If that interest is sold to any other party, the open market value will comprise the term value (the capital value of the right to receive the rental stream) and the reversion value (the deferred value of the right to vacant possession at the end of the term), but not marriage value. The only other element which may be payable by a third party is hope value, the value of the possibility that the tenant may wish to acquire the reversion at some point in the future. The realisation of marriage value is dependent upon the tenant choosing to buy the reversion from a landlord who is willing (or deemed to be willing) to sell (or vice versa)

Even if these conditions are met, whether marriage value arises and if so, to what extent, varies considerably over time. For example, when a 99-year lease is granted there will be no marriage value. Significant marriage value does not arise until the unexpired term of the lease falls below about 80 years. It reaches a maximum when the lease has about 35 to 40 years to run (see Lord Neuberger in Sportelli at [63] and the similar view expressed by Mr. Roberts at para.98(d) of his report dated 11 December 2024) before declining to zero as the term approaches its expiration.

There is also broad agreement that since the CLRA 2002, the market has treated a lease with an unexpired term of less than 80 years as a short lease. Lenders are generally unwilling to provide mortgage finance for the acquisition of such leases, which are therefore difficult to sell in the market. The tenant has a wasting asset which is increasingly difficult to sell and thus needs to buy the freehold reversion or a lease extension at a price which, it is said, should include a share of marriage value. Worse still, if he should delay, the amount of marriage value will increase over a period of about 40 to 45 years until the unexpired term has only about 35 years to run.

In Sportelli Lord Hoffmann summarised the economic pressures to which such a tenant is subject at [3]:

“When the property to be valued is a freehold subject to a long lease, there is an obvious special purchaser, namely the tenant. The reversion is worth more to him than to others because his lease is a wasting asset, the value of which will inevitably decline to zero unless reinvigorated by extension or merger with the freehold. Thus the value of the lease merged with the reversion is always greater than the sum of the separate values of the two interests. The difference will vary according to the length of the lease: if the unexpired term is very long or very short, so that the reversion or the lease are respectively worth little, the additional value of merger will be low. But when the unexpired term is about to dip below the length which is regarded as adequate security by lenders in the market, it may be considerable. This difference is called the ‘marriage value’.”

Lord Hoffmann went on to add that a tenant may not want to buy the landlord’s interest because, for example, of a lack of funds. An investor who purchases the reversion may therefore pay hope value to take into account the possibility that sooner or later the tenant (or a successor in title) will buy the reversion and thereby make a profit from the realisation of a share of marriage value [4]. Of course, the tenant may still remain unable (or unwilling) to fund the costs of acquiring the reversion and may have limited options available to him.

In his skeleton at [16] and [35] Mr. Jourdan referred to the tenant’s serious lack of bargaining power in the absence of enfranchisement legislation. As an example of this he referred to a transaction in Eaton Terrace, London SW1 (mentioned in the decision of the Lands Tribunal in Arbib v Earl Cadogan [2005] 3 EGLR 139) at [106])) in which the tenant agreed to pay the landlord 75% of marriage value in a transaction outside the statutory code. Even more telling is the analysis of “the wasting asset” problem by the authors of Hague: Leasehold Enfranchisement (7th edition) at para.1-18, part of which states:

“The landlord holds all the cards in any negotiation. …. The landlord is the only person from whom the leaseholder can obtain the freehold or a longer lease, and so has a completely monopolistic and unassailable negotiating position. There are few comparable situations where the bargaining positions are quite so unequal.”

The House of Lords endorsed those views in Majorstake Limited v Curtis [2008] UKHL 10; [2008] 1 AC 787 at [21]-[23] and Howard de Walden Estates Limited v Aggio [2008] UKHL 44; [2009] 1 AC 39 at [36]-[41]. They added that the policy of enfranchisement legislation to provide a remedy for such issues, as “a staging post on the journey towards freehold flats”, applied just as much to lessees who are commercial investors as to those who are resident occupiers.

This leads us back to the problem which has continued to be at the centre of discussion on leasehold reform for many years, the imbalance and unfairness inherent in the relationship between landlord and tenant in a long lease of a dwelling granted in return for a large, up front capital sum. In summary: