How We Calculate Lease Extension Premiums

📋 Overview

The LeaseVault calculator estimates the premium payable by a leaseholder to a freeholder for a statutory lease extension under the Leasehold Reform, Housing and Urban Development Act 1993. The methodology follows RICS professional guidance and the valuation principles confirmed in the landmark Lands Tribunal decision in Sportelli & Others v Cadogan [2007].

Our calculator provides an estimate for guidance purposes. A formal RICS surveyor's valuation is required before serving a Section 42 notice. Use our estimate as a starting point — not a substitute for professional advice.

📈 The Three-Component Premium Formula

Under the 1993 Act, the lease extension premium is calculated as the sum of three components:

Capitalised Ground Rent (CGR)

The present value of the ground rent the freeholder loses when it falls to peppercorn on extension, discounted over the remaining lease term:

CGR = Annual Ground Rent × [1 − (1 + r)^−n] ÷ r

Example: £250/year ground rent with 80 years left at 5% = £250 × 19.6 = about £4,900 capitalised ground rent

Reversion Value (RV)

The freeholder's right to receive the property back at the end of the current lease is pushed back by 90 years when you extend. The compensation is the freehold value discounted over the unexpired term, minus the same value discounted over the extended term:

RV = FV ÷ (1 + r)^n − FV ÷ (1 + r)^(n + 90)

where r = deferment rate, n = unexpired lease years

The shorter the unexpired term, the less it is discounted and the larger the reversion becomes. The second term is tiny for realistic lease lengths.

Marriage Value (MV) — leases of 80 years or fewer only

Applies only when the unexpired term is 80 years or fewer. Under Schedule 13 to the 1993 Act the freeholder receives 50% of the increase in combined value of the leasehold and freehold interests created by the extension:

MV = 50% × [(Extended lease value + new reversion) − (Current lease value + CGR + current reversion)]

⚠ Important: The Leasehold and Freehold Reform Act 2024 provides for marriage value to be abolished, but that provision is not yet in force. Marriage value remains payable under current law for leases with 80 years or fewer remaining.

Total Premium Formula

Premium = CGR + RV + MV (MV only if unexpired term ≤ 80 years)

📊 Key Inputs and Parameters

Parameter	Value Used	Source / Authority
Deferment rate (flats)	5.0%	Sportelli v Cadogan [2007] Lands Tribunal; upheld Court of Appeal [2008]
Deferment rate (houses)	4.75%	Sportelli v Cadogan [2007] Lands Tribunal
Relativity graph	Gerald Eve 2016, interpolated between published points	Published relativity graph; since Sloane Stanley v Mundy (2016) tribunals prefer real-world evidence where it exists
Marriage value split	50% to freeholder	Schedule 13, Leasehold Reform, Housing and Urban Development Act 1993
Extension term	90 years (current law)	Section 56, LRHUDA 1993 (the 2024 Act provides for 990 years, not yet in force)
Ground rent post-extension	Peppercorn (zero)	Section 56(1), LRHUDA 1993
Marriage value threshold	80 years unexpired	Schedule 13, LRHUDA 1993

🔍 Limitations of Our Estimates

Our calculator provides a good-faith estimate using standard RICS parameters. The actual premium in your case may differ because:

Relativity disputes: Freeholders and leaseholders often rely on different relativity graphs or on market evidence, and the choice can move the premium substantially. We use the Gerald Eve 2016 graph, interpolated, and do not model a separate no-Act deduction.
Non-standard deferment rates: While Sportelli rates are the norm, Tribunal decisions occasionally deviate for specific properties or locations.
Existing lease terms: Unusual lease terms (e.g. variable ground rent, break clauses, restrictions) can affect the calculation.
Recent Tribunal comparables: RICS surveyors reference recent local Tribunal decisions to adjust premiums. Our calculator cannot replicate this without case-specific data.
Marriage value calculation: Our MV estimate uses the Gerald Eve 2016 relativity and 5% rates throughout, but the precise figure depends on the specific pre-extension and post-extension valuations conducted by RICS surveyors.

✅ How to use this estimate: Use our calculator to understand the order of magnitude of your premium before engaging a surveyor. If the figure is significant (above £10,000), instruct an ALEP-registered RICS surveyor for a formal valuation before serving a Section 42 notice.

📖 Primary References

⚖

Leasehold Reform, Housing and Urban Development Act 1993

Sections 9, 56, and Schedule 13. The primary statute governing lease extension premiums. legislation.gov.uk

📋

Sportelli & Others v Cadogan Estates [2007] — Lands Tribunal

Landmark decision establishing the standard RICS deferment rates: 5.0% (flats) and 4.75% (houses). Upheld by the Court of Appeal [2008]. The foundation of all standard lease extension valuations.

📈

RICS — Leasehold Reform: Guidance on Valuation

Royal Institution of Chartered Surveyors professional guidance on leasehold enfranchisement valuations, relativity, and deferment rates. rics.org

🏠

LEASE Advisory Service — How is the premium calculated?

Government-funded guidance on lease extension premium components. lease-advice.org

💰

GOV.UK — Extending your lease

Official government guidance on the statutory lease extension process. gov.uk/leasehold-property/extending-the-lease

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