The Three Components of the Enfranchisement Premium
Enfranchisement premium (LRHUDA 1993 Schedules 6 and 13) has three components. (1) Ground rent capitalisation: present value of the landlord's right to receive ground rent for the term of the existing lease; nil or negligible where the ground rent is a peppercorn. Ground Rent Act 2022 banned new ground rents from June 2022. LRHUDA 2024 sets any existing ground rent to peppercorn on statutory lease extension — eliminating this component for new extensions. (2) Reversion value: present value of the freeholder's reversionary interest — the open market value of the property in its unimproved state at lease expiry, discounted back to the present at the deferment rate; shorter leases = less discounting = higher reversion value; Sportelli v Cadogan [2007] LTT established 5% as the standard residential deferment rate; LRHUDA 2024 will prescribe a statutory deferment rate (likely 3.5%–4%), increasing the reversionary value and the freeholder's premium. (3) Marriage value: additional value created by merging leaseholder and freeholder interests; pre-LRHUDA 2024 — applicable where the unexpired term was below 80 years; split 50/50 between freeholder and leaseholder (freeholder receives 50%); above 80 years = no marriage value (80-year cliff edge incentivised early extensions); LRHUDA 2024 abolishes marriage value for ALL enfranchisement claims regardless of remaining term — a very significant reduction in freeholder premium for short-lease portfolios. Relativity: ratio of the leasehold value (at current unexpired term) to the freehold value; affects the marriage value calculation and the diminution in the freehold; commonly disputed using different RICS relativity graphs (no single agreed curve).
LRHUDA 2024 Changes and First-tier Tribunal Disputes
Leasehold and Freehold Reform Act 2024 (LRHUDA 2024) key valuation changes: (i) Marriage value abolished: for all enfranchisement claims — lease extensions and collective enfranchisement — regardless of remaining term; freeholders with short-lease portfolios (under 80 years) will receive substantially lower premiums; not yet in force for valuation changes as of June 2026 (secondary legislation required); (ii) 990-year statutory extension: in force since 24 January 2025; the standard statutory extension term for flats increased from 90 years to 990 years (substantially increases value to leaseholders; reduces freeholder reversionary interest); (iii) No 2-year ownership qualifying period: leaseholders can serve enfranchisement notices from the date of purchase; (iv) Ground rent to peppercorn: on statutory extension under new terms, existing ground rent reduced to peppercorn; (v) Hope value: LRHUDA 2024 limits inclusion of hope value (value reflecting prospect of development planning permission) in collective enfranchisement premiums; (vi) Prescribed deferment rate: secondary legislation will prescribe the deferment rate — removing the main source of valuation dispute but changing the financial outcome for freeholders. First-tier Tribunal (Property Chamber): where freeholder and leaseholder cannot agree the premium, either party can apply to the FTT; the FTT hears expert evidence from RICS-regulated enfranchisement surveyors appointed by each side; the leaseholder generally bears the freeholder's reasonable professional costs (legal and surveyor fees) of the enfranchisement process under LRHUDA 1993.