Lease Extension Valuation
Before you proceed with an informal or formal lease extension, getting an accurate, professional lease extension valuation is absolutely essential. A specialist valuation determines the premium – the price you pay to the freeholder for extending your lease.
Getting this figure right is crucial whether you are pursuing the formal statutory route (which adds 90 years) or the informal route (where the term can vary, up to 999 years).
This guide explains exactly why you need a professional valuation before extending your lease, details how the premium is calculated, how much it'll cost, the dangers of using online calculators, and how our specialist RICS surveyors can provide the accurate valuation you require.
Why a professional Lease Extension Valuation is essential
Leasehold valuation is a highly specialised area and more complex than a standard property valuation. Relying on inaccurate figures or inadequate online tools can lead to costly mistakes, delays, and potential disputes with your freeholder.
Your professional valuation provides a legally defensible basis for your premium offer. It helps protect you from overpaying and is required if your case proceeds to the First-tier Tribunal.
The Leasehold and Freehold Reform Act 2024 was passed on the 24th May 2024, but is not yet in effect and the date for this is not yet clear. We will update our content as and when the finalised legislation is published. Read more - Expected changes
The danger of using online calculators
While online calculators can give a very rough estimate, they cannot account for the specific variables of your property and lease, including the complex factors mentioned above, needed for an accurate figure.
Inaccuracies damaging your claim
Online tools lack the expertise to assess crucial factors like the correct Reversionary Rate, specific ground rent review clauses in your lease, and the appropriate Relativity to apply.
An inaccurate offer based on a calculator can immediately be rejected, damage trust with your freeholder, and prejudice future negotiations.
Incurring additional freeholder costs
Presenting an unsupported online calculation may prompt your freeholder to insist on their own valuation, for which you are typically liable for reasonable costs (£600 - £1,500+).
A professional valuation from your own surveyor might be accepted by the freeholder, potentially saving you this expense.
Not accepted at the First-tier Tribunal
If your case goes to the First-tier Tribunal, they will not accept an online lease extension calculation as valid evidence of the premium payable. A formal RICS valuation report is required for Tribunal proceedings.
- Qualified RICS surveyors.
- Specialists in valuing lease premiums.
- Support with negotiations.
- Turnaround within 1 week, faster if required.
What will the specialist RICS valuer assess?
Valuing the freeholder's right to receive future ground rent payments (especially if there are review clauses), assessing the 'Reversionary Value' (what the freeholder's interest will be worth when the lease expires), and applying 'Relativity' (how the market value of a property changes as the lease gets shorter).
Perhaps the most complex factor is 'Marriage Value'. This is a profit shared between the leaseholder and freeholder when a short lease (under 80 years) is extended, reflecting the increase in the property's value once the lease is longer. Calculating this requires specialist expertise.
These intricate elements mean that only a qualified RICS surveyor, who specialises in lease extensions, can accurately apply the valuation formulas under the Leasehold Reform Act 1993 (which still applies for current claims) to arrive at a legally sound figure.
Beyond the valuation itself, your solicitor ensures crucial statutory deadlines (especially in the formal process) are met, avoiding costly delays, including the potential 12-month waiting penalty if mistakes occur.
How is a Lease Extension Premium Calculated?
For statutory lease extensions under the Leasehold Reform Act 1993 (which still applies to claims made now), the premium is determined by a specific formula that combines three main elements:
The Freeholder's Loss of Ground Rent Income
This element compensates the freeholder for the ground rent payments they will no longer receive during the period of the extended lease.
The calculation takes into account the current ground rent, any scheduled ground rent review clauses in your lease (which can significantly impact this value), and the number of years remaining on your original lease.
The Freeholder's Loss of 'Reversionary Value'
This element compensates the freeholder for the value of receiving the property back with full vacant possession at the end of the original lease term.
A calculation called 'Present Value' is used to determine what that future value is worth today, taking into account the remaining lease length and applying a 'Reversionary Rate' based on market factors.
Marriage Value (for leases under 80 years)
This is often the most significant and complex part of the valuation, only applicable when the unexpired lease term is less than 80 years.
Marriage Value represents the increase in the property's value that occurs solely because the lease has been extended (the marriage of the freeholder's and leaseholder's interests).
The Marriage Value is calculated by comparing the value of the property with the extended, long lease versus the combined values of the freeholder's interest and the leaseholder's interest with the short lease.
Any increase in value is the Marriage Value, and this profit is typically shared equally between the leaseholder and the freeholder (50/50 split).
This is why extending a lease becomes significantly more expensive once it drops below 80 years, as Marriage Value is then added to the premium.
Applying the Formula: Existing Freehold Value and Marriage Value
The surveyor uses the following to arrive at the figures:
- Existing Freehold Value: Calculated using the Term Rate (reflecting depreciation of ground rent income) and the Reversionary Rate (reflecting the present value of the future reversion).
- Existing Leasehold Value: The market value of the property with its current, unextended lease length.
The final premium payable is the sum of the Freeholder's Loss of Ground Rent Income, the Freeholder's Loss of Reversionary Value, and the applicable share of the Marriage Value (if the lease is below 80 years).
Accurately assessing all these components and applying the legal formulas requires specialist expertise and access to relevant market data, which is why a professional RICS lease extension valuation is essential.
- Fixed Fees.
- Leasehold Specialist Solicitors.
- RICS Surveyor Negotiations.
- Complicated jargon made simple.
- Preparation and serving of Section 42 Notice.
When to get your Lease Extension Valuation
It's advisable to get professional valuation advice early in the process, even before formally committing to a lease extension or instructing your solicitor.
While statutory formal lease extensions add 90 years to your existing term (under the Leasehold Reform Act 1993, which still governs current calculations), the cost of this extension is significantly influenced by the number of years remaining on your current lease.
A key point to remember is the 80-year mark. If your lease falls below 80 years, the valuation calculation includes 'Marriage Value', which makes the premium payable considerably more expensive.
Therefore, it is best to order your valuation before your lease drops below 80 years. While the cost does increase gradually as the lease shortens below 90 years, the jump is significant at 80 years.
Note that recent changes under the Leasehold and Freehold Reform Act 2024 have abolished the requirement to have owned your property for two years to make a statutory claim, but the impact of lease length on valuation cost (especially the 80-year rule under the current calculation method) remains for now.
Lease Extension Valuation Costs
Your Freeholder's Valuation Costs
Under the current legislation (Leasehold Reform Act 1993), you are responsible for the freeholder's reasonable valuation costs incurred during the formal lease extension process. This covers the cost of their surveyor reviewing your claim and providing their own valuation or confirmation.
However, by instructing your own qualified RICS lease extension surveyor and providing their professional valuation report, you may find that the freeholder's surveyor accepts your valuation figures without needing to carry out extensive work themselves.
In such cases, the freeholder may waive or reduce their own valuation costs, potentially saving you an amount typically ranging from £600 to £1,500 or more. This highlights the value of investing in your own expert valuation upfront.
Your Own Valuation Fee
You will, of course, also incur the cost of instructing your own RICS lease extension surveyor to provide your initial valuation report.
Additionally, if there are significant differences between your surveyor's valuation and the freeholder's, your surveyor may need to spend time negotiating with the freeholder's surveyor to reach an agreement.
Be aware that this negotiation time may be charged separately, often at an hourly rate, so it's wise to clarify this with your surveyor beforehand.
For a comprehensive breakdown of all potential expenses involved in extending your lease, including legal fees, freeholder's legal costs, and Stamp Duty, please see our detailed guide on Lease Extension Costs.
What happens next in the Lease Extension Process?
Once you have obtained a professional lease extension valuation, you will have a clear understanding of the premium payable. The next steps in the lease extension process involve:
- Confirming Eligibility: While the valuation doesn't determine eligibility, it's crucial to ensure you meet the criteria for a statutory claim, especially if you are a buyer and need the seller to initiate the process on your behalf.
- Choosing the Route: Deciding whether to proceed via the formal statutory route or attempt an informal negotiation with your freeholder.
- Instructing a Solicitor: Engaging a specialist lease extension solicitor to handle the legal aspects of your chosen route, including serving notices (like the Section 42 if formal), reviewing the new lease, and managing completion and registration.
- Agreeing on Costs and Premium Payment: Finalising the agreement on who will pay for the lease extension costs (including legal and valuation fees) and the premium itself, particularly if you are involved in a property transaction.
For a comprehensive guide to the full formal lease extension process, please refer to our article: Lease Extension Process Explained.
Free Initial Leasehold Advice
Arrange a free consultation with one of our experienced conveyancing executives on:
- Lease extension.
- Purchasing the leasehold, freehold or share of freehold.
- Selling a leasehold property with a short lease.
- Extending the lease at the same time as you sell.
We specialise in lease extensions and have RICS valuers for the premium/negotiation and solicitors for the section 42 notice and formal or informal extension. Request a tailored quote for:
- RICS Lease Extension Valuation or L2 Homebuyers Survey.
- Serving of the section 42 notice or section 13 notice on the freeholder.
- Negotiation with the freeholder (with the support of your RICS valuer).
- Completion of the legal work, including deed of variation.
- Application to Tribunal to determine the premium.
- Vesting order for absent landlords.
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Andrew started his career in 2000 working within conveyancing solicitor firms and grew hands-on knowledge of a wide variety of conveyancing challenges and solutions. After helping in excess of 50,000 clients in his career, he uses all this experience within his article writing for SAM, mainstream media and his self published book How to Buy a House Without Killing Anyone.
Caragh is an excellent writer and copy editor of books, news articles and editorials. She has written extensively for SAM for a variety of conveyancing, survey, property law and mortgage-related articles.
