How is a lease extension premium calculated?

The premium compensates the freeholder for the ground rent they lose (capitalised at a rate of around 6 to 7 percent), the delay to getting the flat back (the reversion, deferred at 5 percent for flats), and, where the lease has under 80 years left, half of the marriage value: the uplift in the flat's value created by extending the lease.

Why does 80 years matter?

Under the current statutory method, once a lease falls below 80 years the freeholder is entitled to half of the marriage value, which makes the premium jump sharply. Extending before the 80-year point is usually much cheaper.

Does the Leasehold and Freehold Reform Act 2024 change this?

Yes, once its valuation provisions are brought into force: marriage value is abolished and capitalisation and deferment rates are prescribed. The calculator lets you compare the current method with the reformed method. Check with a valuer which applies on the day you serve notice.

Is this calculator a valuation?

No. It is an estimate using standard assumptions. Actual premiums are negotiated or set by the First-tier Tribunal, and the freeholder's valuer will argue for higher figures. Use it to budget and to decide whether to act before 80 years.

Lease extension calculator

1. The ground rent

The freeholder loses the ground rent for the rest of the term, because an extended lease is at a peppercorn. That income stream is capitalised: valued today at a rate of around six or seven percent. Doubling ground rents make this part bigger than people expect.

2. The reversion

The freeholder gets the flat back ninety years later than they would have. The value of that delay is the flat's long-lease value, deferred at five percent a year for the years remaining. On a lease with sixty years left this is small; on twenty years it dominates.

3. Marriage value, under eighty years

Extending a short lease creates value: the extended lease is worth more than the short lease and the freeholder's interest put together. Under the current method, if the lease has fewer than eighty years left, the freeholder is entitled to half of that uplift. This is why premiums jump at the eighty-year mark, and why acting at eighty-two is cheaper than at seventy-nine.

The 2024 Act

The Leasehold and Freehold Reform Act 2024 abolishes marriage value and prescribes the rates, once the government brings those provisions into force. The tick box in the assumptions shows what the same lease would cost under the reformed method. Until commencement, the current method applies to notices served.

What this is not

A valuation. The freeholder's valuer will argue for a lower relativity, a lower deferment rate or a higher flat value, and each argument moves the figure. Budget for the top of the range shown, plus your own valuer's and solicitor's fees and the freeholder's reasonable costs. If the block is yours, or you are the freeholder, we manage blocks and buy them.

Lease extension calculator.

How the premium is worked out.