The legal context

Leasehold enfranchisement rights were first introduced in the 1960s and have undergone a number of changes since, culminating in the Commonhold and Leasehold Reform Act of 2002. The result of the legislation has been to give leaseholders the right to purchase the freehold of a house, the freehold of a block of flats or to extend the lease of a flat.

In order to purchase the freehold or extend a lease, the tenant must pay the landlord an appropriate premium to reflect the transfer of rights and this is done through a statutory formula, as follows:
 

The reduction in the value of the landlord's interest

+

Half of the marriage value (only if the existing lease has less than 80 years to run)

+

Compensation to the landlord for severance or other losses
 

Calculation of the marriage value involves assessing the value of the lease at its current length relative to the value of the same property assuming it was held freehold. This percentage is commonly referred to as relativity.

The statutory assumption

The valuation is subject to the hypothetical assumption that the lease being valued does not have the right conferred by statute, i.e. to extend the lease or buy the freehold. All other leases in the market at the point of valuation do have these rights.

Whilst the valuation is made with reference to market evidence and at the date on which the statutory notice was served, there is no market evidence available that exactly replicates the statutory assumption because, with rare exceptions, the situation has never existed.

This assumption is often referred to as a ‘no-Act world’, but it is only a ‘no-Act world’ for the subject lease and not for any of the other leases in the market.