A Housing Forum Good Practice Guide Sustainable Leasehold and Long-term Asset Management 25 Like local authorities, housing associations will have to offer the Right to Buy to their tenants, and this will increase the number of leaseholders significantly. The premium to be paid for the new lease, according to Schedule 13, Part II of the Leasehold Reform, Housing and Urban Development Act 1993 (as amended), is the total of: l The reduction in the value of the landlord’s interest in the flat; that is, the difference between the value of the interest now with the present lease and the value of the interest after the grant of the new lease with the extra years. l Compensation for loss arising from the grant of the new lease. The reduction in the value of the landlord’s interest is: l The loss of the income from the ground rent for the remainder of the original term; plus l The loss due to the additional years waiting for the reversion (the surrender of the flat at the expiry of the term). The marriage value is the value of the leasehold reversion when two or more value components are blended together. This value is taken as the potential for increase in the value of the flat arising from the grant of the new lease; the act requires that this ‘profit’ should be shared between the parties. The proportion of the split of marriage value between the landlord and the leaseholder is legally set at 50:50. In the calculation of the marriage Maydew House, Southwark. Image supplied by calfordseaden value, the leaseholder’s and landlord’s valuers will rely on local knowledge and experience to assess the increase in value in the flat arising from the new lease. The compensation is to provide remedy to the landlord for any other reduction in the value of his interest in other property (other flats in the building or the building itself) and any loss or damage arising from the grant of the new lease. It is difficult to find examples of where a landlord could claim compensation since he will, in most cases, retain the freehold. Probably the only possibilities could be a claim for loss of opportunity for redevelopment potential or for a reconversion of a house containing flats back to a single dwelling. The act does not require a formal valuation to be carried out but it would be prudent to obtain one. The valuation will provide the basis for the leaseholder’s offer to the landlord contained in the tenant’s notice. The legislation requires that the value of the interest to be acquired should be determined in accordance with general market values – assuming a willing vendor and a willing purchaser. The principles of the act are not to provide a forced bargain for the leaseholder but to compensate the landlord adequately for the reduction in the value of his property – a fair price based as closely as practicable on open market values. The essential difficulty is the assessment of an open market value in the artificial situation created by the imposition of the leaseholder’s rights. The importance of managing ground rent as a source of income It is important that housing associations should be also be thinking about the
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