Learn exactly how the RICS deferment rate method calculates your lease extension premium, with fully worked examples for typical UK properties.
📚 Lease Extension — Full Guide Series
→ The 80-Year Rule Explained→ Marriage Value Explained→ Section 42 Notice Guide→ Solicitor Fees for Lease Extensions→ RICS Relativity Tables Explained→ Should I Wait or Extend Now?The lease extension premium is determined by a legal framework established under the Leasehold Reform, Housing and Urban Development Act 1993 and refined by landmark Tribunal cases. The premium has three components added together:
Uses the Years' Purchase (YP) formula: YP = (1 minus (1 + r) to the power of minus n) divided by r, where r = 0.05 and n = unexpired lease years.
Annual ground rent: £250 | Unexpired term: 72 years | Rate: 5%
YP = (1 minus 1.05 to the power minus 72) / 0.05 = 19.48
Ground rent capitalisation = £250 x 19.48 = £4,870
Formula: Reversion = FV x (1 minus Relativity) divided by (1 + r) to the power n
Relativity expresses the leasehold value as a percentage of freehold value. At 72 years: approximately 95%. At 50 years: approximately 87.5%. At 30 years: approximately 73%.
Formula: MV = 0.5 x (New leasehold value minus Current leasehold value minus Reversion minus GR Capitalisation)
Property freehold value: £350,000 | Lease: 68 years | Ground rent: £300/yr
GR Cap: £300 x 19.2 = £5,760 | Reversion: approximately £2,100
No marriage value (68 years is above 80 in the post-extension lease)
Total Premium: approximately £7,860
Budget an additional £3,500–£6,000 for professional fees: your solicitor (£1,500–£2,500), your surveyor (£700–£1,400), and the freeholder's reasonable costs (£1,500–£2,500 combined) which you are legally obliged to pay.
A lease extension premium has three parts: (1) Ground rent capitalisation — the present value of ground rent the freeholder loses when rent falls to peppercorn; (2) Reversion value — the present value of the freeholder's right to get the property back at lease expiry, discounted over the new extended term; (3) Marriage value — applies only if the lease is below 80 years, representing 50% of the value gain from the extension. Our calculator computes all three using RICS deferment rates.
The RICS deferment rate is the discount rate applied to the freeholder's reversionary interest. The rate was set at 5.0% for flats and 4.75% for houses following the landmark Sportelli case in 2007, and these rates remain in standard use. The rate represents the return a freeholder would expect from holding the land as an investment.
LeaseVault's calculator uses the same RICS deferment rates and relativity tables as professional surveyors, making it as accurate as any publicly available tool. However, it provides an estimate — the actual negotiated premium depends on comparable Tribunal decisions, the specific terms of your lease, and negotiation. A RICS surveyor's formal valuation is required before serving a Section 42 notice.
Relativity is the percentage ratio of a short leasehold value to the equivalent freehold value. For example, a flat with 70 years remaining might be worth 95% of its freehold value — a relativity of 95%. The lower the relativity, the greater the marriage value when the lease is extended. Different RICS-approved relativity graphs exist and the choice of graph is a common dispute between leaseholder and freeholder surveyors.
🇺🇸 American buying a UK flat?
The American's Guide to Buying a UK Leasehold Flat
30 pages. Ground rent, the 80-year rule, marriage value, stamp duty, US tax reporting and the 2026 reforms — all in plain American English. Written by the LeaseVault team.
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Get your instant lease extension estimate using official RICS rates.
Calculate Now →This article is for general information only and does not constitute legal or financial advice. Always consult a specialist solicitor and RICS surveyor before taking any action.
We'll notify you when 2024 Act provisions come into force, new rates are published, and when landmark Tribunal decisions affect your premium.