Cost of lease extension
Apart from a very few low value houses, whether you are extending your lease or buying the freehold of your house, the valuation principles share near identical characteristics. The principle components of the price are:
- Compensation to the landlord for the loss of any ground rent payable to him for the remainder of the former lease.
- Compensation to the landlord for the loss of his “reversion”. The reversion is the discounted value of the unimproved freehold interest reflecting the length of the unexpired term.
- The landlord’s share of “marriage value”, effectively being the gross profit which would be achieved on a sale of the subject property having regard to the value of the tenant’s existing leasehold interest and the price he must pay to the landlord to compensate him for his loss.
- For collective claims there may be additional premiums payable to reflect the loss of other assets the landlord may have, including amongst other things the value of commercial space, roof top developments, mobile phone masts, storage space and parking spaces.
There is a general principle that the tenant should not pay a premium which reflects the value of any improvements which he or his predecessors have undertaken since the date of grant of the lease.
Below is a table giving a rough guide to the premium payable for a lease extension or enfranchisement claim which shows the premium as a percentage of the end value (unimproved) of the flat or house. The table assumes that the ground rent payable is nominal, so if the annual ground rent payable is high this will increase the premium.
| Premium payable |
| Time Period |
Percentage |
| 5 years |
82% |
| 10 years |
69% |
| 14 years |
57% |
| 20 years |
45% |
| 30 years |
34% |
| 40 years |
25% |
| 50 years |
18% |
| 60 years |
13% |
| 70 years |
8% |
| 80 years |
5% |