Lease Extension Calculator

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​How is a lease extension premium calculated?

Lease extension premiums (the part payable to the freeholder for the grant of the new lease) are complicated. They are not a market value estimate such as you might find on Zoopla or by talking to an estate agent. It is instead a specific calculation governed by legal and valuation principles.

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How the premium is calculated

The lease extension premium is the price paid to the freeholder for granting the extended lease. It is not based on a simple price list. Under the statutory process, it is calculated by reference to the value of the flat, the remaining lease term, the ground rent and a number of specialist valuation assumptions.

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The premium will usually include:

• Loss of ground rent: compensation for the ground rent the freeholder would otherwise have received during the remainder of the existing lease.

• The freeholder’s reversion: compensation for delaying the date on which the flat would otherwise return to the freeholder when the lease expires.

• Marriage value: where the lease has 80 years or fewer remaining, the premium may include 50% of the increase in the flat’s value created by extending the lease. Marriage value is not payable where the lease has more than 80 years remaining at the valuation date.

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In less common cases, the premium may also include compensation for another loss suffered by the freeholder, such as the loss of potential development value.

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The calculation becomes more complicated where the ground rent doubles, increases in line with inflation or is linked to the value of the property. The result may also be affected by assumptions about investment rates and the value of the existing short lease compared with a long lease. Our lease extension calculator therefore provides an initial estimate only, and only in limited cases. 

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What information do I need?

You will need your current lease length, the annual ground rent, the estimated current value of your flat plus a best guess of what the flat will be worth with an extended lease.

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You should be able to establish the ground rent by looking at a recent demand from the freeholder. Alternatively, your conveyancer will have provided a report on title which set out the lease length and ground rent.

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We provide a simple calculator above to give a very rough idea for leases with a fixed ground rent however there are many elements at play when calculating the premium payable under the Leasehold Reform, Housing and Urban Development Act 1993, including marriage value in some cases (for leases with less than 80 years) and capitalising ground rents including doubling ground rents, RPI ground rents and ground rents linked to a percentage of the sale price of your property. There are also Tribunal decisions on things such as roof space development value and other niche areas.

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Other lease extension costs

​Once you have established the likely premium, you will need to factor in the related costs of the process:

 

• Your own legal costs of perhaps £950 - £2,000 depending on the solicitors you appoint (we offer a fixed legal fee to extend your lease)

• Your own valuation costs of typically between £500-£800 (if required)

• Freeholder's legal costs of typically £1,600-£2,000 plus VAT but this can vary considerably depending on the firm appointed by your freeholder (they are entitled to recover 'reasonable legal costs' however the FTT has upheld landlord legal costs of £3,000 plus VAT in cases we have been involved with, and so this leaseholder protection isn't entirely useful)

• Freeholder's valuation fee of around £500-£800, note that you should under no circumstances pay your landlord's negotiation costs, as these are not recoverable under section 60 of the Leasehold Reform, Housing and Urban Development Act 1993.

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What type of lease is this calculator useful for?

It is very useful for those with a fixed ground rent (rather than doubling ground rent or RPI-linked ground rent, in which case a valuation surveyor should be consulted instead) and with more than 80 years. Those with less than 80 years will need to pay marriage value, and in this case the sums involved at much higher and this warrants incurring the cost of a valuation report. The calculation is also more complicated which further supports having a bespoke valuation.

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How does the section 42 notice process work

We have a comprehensive and up-to-date guidance page on how the statutory lease extension process works. 

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Frequently asked questions

What information do I need to use the calculator?

You will need the current value of your flat, the number of years remaining on your lease and your annual ground rent. The property value should generally be the estimated value of the flat with a long lease. Enter the ground rent only, rather than any service charges you also pay.

How is a lease extension premium calculated?

A statutory lease extension premium usually compensates the freeholder for the loss of future ground rent and the delay in receiving the property back at the end of the lease. Marriage value will also form part of the calculation where the lease has less than 80 years remaining. The precise calculation involves specialist valuation assumptions, which is why online calculators are useful in simpler cases such as those leases with more than 80 years and with a low, fixed ground rent.

Why is the 80-year lease threshold important?

Under the law currently in force, marriage value becomes payable once a lease has fewer than 80 years remaining. This can significantly increase the cost of extending the lease. If your lease is approaching this point, you should consider taking legal and valuation advice promptly, as serving a valid section 42 notice fixes the valuation date before marriage value kicks in.

Should I extend my lease now or wait for leasehold reform?

Further reforms are intended to change how statutory lease extension premiums are calculated, including the removal of marriage value, but these valuation changes are not yet in force. Whether it is sensible to proceed or wait will depend on your remaining lease term, plans to sell or remortgage and individual circumstances. You should obtain advice before delaying a lease extension, particularly where the lease is approaching 80 years.

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