Wednesday, 25 April 2018
Post your listing on Realty Times
This Old House - Do-it-Yourself

Advice on Marriage Value and Ransom Strips

Written by Posted On Tuesday, 17 April 2018 11:05

When it comes to extending a leasehold property the devil is very much in the detail when it comes to determine what should be paid for non-demised space or land.

The classic situation is where a leaseholder of an upper flat wishes to convert their loft space and add further habitable space to their property. The loft space is often not owned by the leaseholder, so the concept whereby they purchase it from the freeholder is a simple one. Reviewing a lease to determine whether this is the case is often a touch more difficult, usually owing to the poor drafting of older leases, but in the majority of cases the interpretation favours the freeholder.

Determining who owns the space is only half of the battle; you also need to consider the lease covenants and whether they allow the freeholder to withhold consent. Most leases will contain the clause, ‘consent for alterations not to be unreasonably withheld’, but this tends to relate only to internal alterations and may not be strictly applied to more major/potentially structural changes. If in doubt, consult a solicitor – and see this government funded lease advice..

The most profitable use of your loft space is likely to involve the construction of a dormer, which gives the occupier a great deal more head height to the rear of the floor versus the confines of a pitched roof. Unless the space is very large, loft conversions with front and rear restricted head height are undesirable. As the freeholder will own the external fabric of the building you’ll need their consent to build a dormer, and if they can withhold that consent, a premium will be payable. Whilst there is no legislation that governs the mathematics behind this process, it is commonly accepted that the freeholder is entitled to 50% of the profit that arises from the development. Establishing that figure involves comparing the existing value and proposed value minus the costs. Various factors can come into play such as risk, cost of finance and professional fees. See this helpful page on how Marriage Value is calculated.

marriage value homes 2

But what if the proposal is to build an entirely self-contained dwelling? The answer is that the calculation is broadly similar, but whereas you were taking a proposed value away from an existing value, the existing value here would be much lower, verging towards zero if the space currently has minimal value.

There are other scenarios, where the 50% marriage value principle is not the correct percentage to use. Marriage value, by its definition occurs by combining two assets that result in greater value than if they were to remain separate. You can have a situation where it is less about combining but needing a specific plot of land in order to make a development viable. This scenario is typically referred to as a ransom strip. The leading authoritative case is Stokes v Cambridge where the Court held that a price to be attributed to the ransom strip was one-third of the increase in value of the subject land as a result of acquiring the strip.

A ransom strip may be a portion of land that is needed to form a right of way or access to a plot, but there can be other less obvious examples. You could for example have a lease covenant that prevents a developer creating such access. A leaseholder may enjoy the use of a loft space, but not specifically own it. A freeholder may have ideas of building an additional storey, but the only point of access is through the loft, therefore creating a ransom strip of legal form rather than physical form.

Whilst the same due diligent process is followed each time, every case needs to be taken on its own merits. If in doubt seek the advice of an expert Chartered Surveyor.

Rate this item
(0 votes)
Liam Houghton

Liam Houghton is a home inspection expert with 7 years of experience working with South East England Surveyors. 

Agent Inner Circle

1/10

Realty Times

From buying and selling advice for consumers to money-making tips for Agents, our content, updated daily, has made Realty Times® a must-read, and see, for anyone involved in Real Estate.