A lease extension valuation is commonly calculated using three main components: term value, reversion value and, under the current statutory method for qualifying flats with fewer than 80 years left on the lease, marriage value. Together, these elements inform the premium payable to the freeholder.
The calculation helps explain why two similar flats can have very different lease extension premiums. Remaining lease length, ground rent terms and the evidence used to assess relativity can all affect the final figure.
The three components of the calculation
A statutory lease extension premium reflects the value the freeholder gives up when a new lease is granted.
For a flat, the current approach normally considers:
Term value: the present value of future ground rent that the freeholder will no longer receive
Reversion value: the present value of the freeholder’s right to regain the property when the existing lease ends
Marriage value: an additional amount that can apply where the lease has fewer than 80 years remaining
The statutory calculation can also include compensation where the freeholder can demonstrate another loss resulting from the lease extension. The precise approach depends on the lease terms, the relevant legislation and the date on which the valuation is assessed.
An informal lease extension is different. The leaseholder and freeholder can agree their own commercial terms, which may include a different lease length, ground rent arrangement or premium calculation. Legal advice should be obtained before agreeing to an informal extension.
Term value: compensation for lost ground rent
Term value represents the present value of the ground rent income that the freeholder would have received for the rest of the existing lease term.
For a qualifying statutory extension of a flat, the extended part of the lease is granted at a peppercorn rent, which has no financial value. The freeholder therefore gives up the right to receive future ground rent under the existing lease.
The valuer considers the rent currently payable and whether it changes during the lease term. A lease with a higher ground rent, or one with review provisions, may produce a higher term value than a similar flat with a low fixed rent.
As the freeholder would receive that income over many future years, the rent is converted into a present day figure. This involves a capitalisation rate, which reflects the value today of income received in the future.
Reversion value: the freeholder’s future interest
Reversion value reflects the freeholder’s right to regain possession of the flat when the existing lease expires.
Without a lease extension, the freeholder’s interest would become more valuable as the end of the lease approaches. A statutory extension delays that point significantly, so the freeholder is compensated for the change in the value of that future interest.
The valuer assesses the likely value of the flat at the end of the current lease, then converts that future figure into a present day amount. This process uses a deferment rate.
The longer the lease has left to run, the lower the reversion value is likely to be. A freeholder’s right to regain possession in many decades’ time has a much lower present value than a right arising in the nearer future.
Marriage value: why the 80 year point matters
Marriage value is the additional value created when the leaseholder’s interest and the freeholder’s interest are brought together through a lease extension.
A short lease can reduce the value of a flat. Once extended, the flat may be worth more than the combined value of the existing short lease and the freeholder’s separate interest. The difference is known as marriage value.
Under the current statutory process, marriage value may apply where the unexpired term is below 80 years. The freeholder’s share is set at 50 per cent. This is why the cost of extending a lease can rise more sharply once it falls below that point.
Marriage value is not a separate fee. It forms part of the premium calculation. Its effect will depend on the lease length, the value of the flat with a longer lease and the evidence used to assess the existing short lease value.
Leasehold reform changes to monitor
The Leasehold and Freehold Reform Act 2024 includes changes that will remove marriage value from the statutory calculation and introduce a revised valuation method. However, the Government confirmed in July 2026 that these changes require further regulations and are intended to come into force in the future.
The applicable law depends on the position when a claim is made. Leaseholders should obtain current legal and valuation advice before relying on the 80 year threshold or any estimate of premium.
Relativity: why similar flats can have different premiums
Relativity describes the relationship between the value of a flat with a shorter lease and the value of the same flat with a long lease. It is usually expressed as a percentage of the long lease value.
Lower relativity means there is a greater difference between the short lease value and long lease value. This difference can have a material effect on the lease extension premium, particularly where the remaining term is shorter.
Valuers consider market evidence and published relativity graphs when assessing this part of the calculation. The most relevant evidence will depend on the lease length, property type, location and price range.
Surveyors may place different weight on the available evidence, particularly for unusual flats or leases close to key thresholds. This is one reason why similar flats can attract different premiums.
Other information considered by the valuer
A lease extension valuation requires more than a simple estimate of the flat’s market value. The valuer will need to review the lease and establish the assumptions that apply to the instruction.
Relevant information may include:
- The unexpired lease term
- The ground rent payable
- Ground rent review provisions
- The flat’s long lease value
- Comparable sales evidence
- The valuation date
- Any intermediate leasehold interests
- The statutory or negotiated basis for the extension
The lease terms are central. A ground rent that rises over time can affect the calculation differently from a fixed rent. Equally, a flat in a particular building or local market may require careful consideration of the most relevant sales evidence.
Brian Gale Surveyors prepares leasehold valuation reports through RICS Registered Valuers. The work can include inspection, review of lease terms, assessment of the remaining lease length, analysis of comparable evidence and calculation of the premium where statutory valuation methods apply.
Who carries out the valuation?
In a statutory lease extension, the leaseholder and freeholder will often each obtain valuation advice. The leaseholder’s valuer assesses the premium and supports the leaseholder during negotiations. The freeholder may instruct a separate valuer to review the claim and present the landlord’s position.
The parties may then negotiate the premium. Where they cannot reach agreement, either party may be able to apply to the First-tier Tribunal, Property Chamber, for a determination on the premium or relevant terms.
A Tribunal process should not be viewed as automatic or inevitable. A well prepared valuation can help identify the evidence and assumptions that need to be discussed during negotiation.
What fees should leaseholders budget for?
The premium is only one part of the overall cost of a lease extension. Leaseholders should also consider their own legal and valuation fees.
Under the existing statutory process, a leaseholder may also be responsible for the freeholder’s reasonable valuation and legal costs associated with the claim. The Tribunal can assess whether those costs are reasonable.
The Leasehold and Freehold Reform Act 2024 includes changes to process costs, but the Government has indicated that further work is needed before the new arrangements come into force. The applicable costs position should therefore be confirmed with a solicitor at the start of the process.
Why professional valuation advice matters
Lease extension premiums can be affected by technical assumptions, lease terms and the quality of the evidence used. An independent valuation helps the leaseholder understand how a proposed figure has been reached and provides a basis for negotiation.
Brian Gale Surveyors provides lease extension valuation advice for leaseholders across Surrey, Sussex, Kent and London. For an overview of what a lease extension typically costs, read the article.
A property specific valuation is required to assess an individual premium. General articles and online calculators can be helpful for background information but cannot account for every lease term, valuation date or feature of a particular flat.
Frequently asked questions
- What are the three components of a lease extension valuation?
A lease extension premium is commonly based on term value, reversion value and marriage value where it applies.
Term value reflects lost ground rent. Reversion value reflects the delayed right to regain the flat. Marriage value can apply under the current statutory process where a lease has fewer than 80 years remaining.
- Why does marriage value only apply under 80 years?
Under the current statutory process, marriage value is excluded where the lease has more than 80 years left to run. Where the term is below 80 years, the freeholder is generally entitled to 50 per cent of the marriage value.
Reforms planned under the Leasehold and Freehold Reform Act 2024 will remove marriage value, but the Government has stated that the new valuation provisions are not yet in force.
- What is a relativity graph?
A relativity graph shows the typical relationship between the value of a flat with a shorter lease and its value with a long lease.
Surveyors use relativity evidence alongside comparable sales and professional judgement. Different views on the most suitable graph or evidence can lead to negotiation between the parties.
- Who pays the surveyor and legal fees in a lease extension?
Under the current statutory process, the leaseholder usually pays their own legal and valuation costs and may also be responsible for the freeholder’s reasonable legal and valuation costs.
The costs position can differ in an informal agreement and is due to change when later provisions of the Leasehold and Freehold Reform Act 2024 come into force. Legal advice should be obtained for the circumstances of the proposed extension.
Discuss a lease extension valuation
Understanding the calculation can help leaseholders assess the basis of a proposed premium before negotiations progress.
Speak to Brian Gale Surveyors to get a quote for a lease extension valuation.
