Enfranchisement Valuation UK — Marriage Value, Relativity, and LRHUDA 2024

The Three Components of Enfranchisement Premium

The enfranchisement premium (the price a leaseholder pays to extend their lease or acquire the freehold) is calculated using a statutory formula under LRHUDA 1993 Schedule 13 (for lease extensions) and Schedule 6 (for collective enfranchisement). The formula has three main components: (1) Ground rent capitalisation: the present value of the right to receive ground rent income for the term of the existing lease. Ground rents are capitalised at a relativity-adjusted rate reflecting the security and term of the income stream. Where the lease is subject to a peppercorn (nil) ground rent — common after the Leasehold Reform (Ground Rent) Act 2022 which banned new ground rents from June 2022 — this component is nil or negligible; (2) Reversion: the present value of the landlord's right to receive back the property at the end of the lease term — the open market value of the property in its unimproved state at lease expiry, discounted back to the present day at the deferment rate. The deferment rate reflects the risk and time value of money over the lease term; historically 5% for houses and 5% for flats (Sportelli v Cadogan [2007] LTT); the government is consulting on a new prescribed deferment rate under LRHUDA 2024 (likely to be set at a lower rate, increasing the reversion value and freeholder's premium); (3) Marriage value: the additional value created by merging the leaseholder's and freeholder's interests — historically applicable where the unexpired lease term was below 80 years and split 50/50. LRHUDA 2024 abolishes marriage value for all enfranchisement claims regardless of the remaining lease term. This is the most significant change for freeholders with short-term leases.

• Ground rent capitalisation: present value of future ground rent income; where the ground rent is a peppercorn (nil), this component is effectively zero
• Reversion value: present value of the freehold reversionary interest at lease expiry, discounted at the deferment rate; shorter leases = less discounting = higher reversion value
• Marriage value: additional value from merging freeholder and leaseholder interests; historically applicable where the unexpired term was below 80 years; split 50/50 between freeholder and leaseholder; ABOLISHED by LRHUDA 2024
• Deferment rate: the discount rate applied to the reversionary value to bring it back to present value; historically 5% (Sportelli); LRHUDA 2024 will introduce a prescribed rate — likely lower than 5%, which will increase the reversion and freeholder's premium
• Relativity: the ratio of the value of the leasehold interest to the freehold value; affects the ground rent capitalisation and the calculation of the diminution in the value of the freehold

Marriage Value — What It Is and the LRHUDA 2024 Abolition

Marriage value is the additional value created when two interests in the same property — the long leasehold interest and the freehold reversionary interest — are merged into a single freehold ownership. The theory is that the combined freehold is worth more than the sum of the two separate interests: a flat with 60 years unexpired on its lease is worth less than the same flat with 999 years or freehold ownership. The difference (the 'marriage value') is the additional value created by the extension or enfranchisement. Under LRHUDA 1993 as originally enacted, marriage value was shared 50/50 between freeholder and leaseholder where the unexpired lease term was below 80 years. For leases above 80 years, marriage value was zero (because the leasehold interest was so close to the freehold in value that no material difference existed). The 80-year threshold created a cliff edge: leaseholders with 81 years remaining paid no marriage value; those with 79 years remaining paid substantial marriage value on the 50% freeholder's share. This incentivised leaseholders to extend their leases before crossing the 80-year threshold. LRHUDA 2024 abolishes marriage value for all enfranchisement claims — lease extensions and collective enfranchisement — regardless of the remaining lease term. This is a very significant change for freeholders: a flat with 55 years remaining on its lease previously attracted substantial marriage value (often tens of thousands of pounds on the freeholder's 50% share); post-LRHUDA 2024, the freeholder receives no marriage value at all. The abolition of marriage value will substantially reduce the premium payable by leaseholders on short leases — and correspondingly reduce the freeholder's receipt. The implementation date for the LRHUDA 2024 valuation changes is to be confirmed by secondary legislation; as of June 2026, the valuation changes are not yet in force (the ground rent and lease extension term changes have already commenced).

• Marriage value definition: the additional value created by merging freeholder and leaseholder interests; the combined freehold is worth more than the sum of the two separate interests
• Pre-LRHUDA 2024: marriage value applicable where unexpired term was below 80 years; split 50/50 (freeholder receives 50% of marriage value); leases above 80 years — no marriage value
• LRHUDA 2024 abolition: marriage value is abolished for all lease extensions and collective enfranchisement regardless of the remaining term; no compensation payable by the leaseholder to the freeholder for marriage value
• Impact on freeholders: freeholders with short-lease portfolios (leases under 80 years) will receive substantially lower premiums post-LRHUDA 2024; the loss of marriage value income is a significant reduction in the reversionary value of such portfolios
• Implementation timing: the LRHUDA 2024 valuation changes are not yet in force (as of June 2026); secondary legislation is required to bring them into effect; freeholders should plan for the change while being aware of the current transitional position

Relativity and the Deferment Rate — Disputed Enfranchisement Premiums

Two further components of enfranchisement valuation that frequently generate disputes between freeholders and leaseholders are relativity and the deferment rate. Relativity: 'relativity' refers to the ratio of the value of the leasehold interest (with its existing unexpired term) to the full freehold (or long leasehold) value of the property. A flat with 60 years unexpired on its lease is worth less, as a percentage of the freehold value, than a flat with 90 years unexpired. The relativity percentage affects the calculation of the marriage value (pre-LRHUDA 2024) and the diminution in the freehold value. Relativity is usually assessed by reference to market transactions, RICS relativity graphs, or other comparable evidence. There is no single agreed relativity curve — different RICS graphs and market evidence sources produce different relativities, and disputes about the appropriate relativity are common in the First-tier Tribunal. The deferment rate: the deferment rate is the discount rate applied to the open market value of the property at the end of the lease term to calculate the present value of the freehold reversion. Sportelli v Cadogan [2007] LTT established a standard deferment rate of 5% for residential property. LRHUDA 2024 will introduce a prescribed statutory deferment rate — the government has indicated this will likely be set lower than 5% (perhaps 3.5%–4%), which would significantly increase the reversionary value and the freeholder's premium. The First-tier Tribunal (Property Chamber): where a freeholder and leaseholder cannot agree on the enfranchisement premium, either party can apply to the First-tier Tribunal to determine the premium. The FTT hears expert valuation evidence from both sides and determines the appropriate premium. The costs of FTT proceedings (valuation surveyors, legal advice) can be significant — freeholders should ensure they instruct a RICS-regulated enfranchisement surveyor to prepare a robust counter-schedule of condition and valuation.

• Relativity: the ratio of the leasehold value (at its current unexpired term) to the freehold value; determines the extent to which the existing leasehold interest is already reflected in the leaseholder's half of marriage value; commonly disputed using different RICS relativity graphs
• Deferment rate: 5% established in Sportelli v Cadogan [2007] LTT for residential property; LRHUDA 2024 will prescribe a statutory rate (likely lower — 3.5%–4%) which will increase the reversionary value and the freeholder's premium
• First-tier Tribunal (Property Chamber): determines disputed enfranchisement premiums on application by either party; hears expert valuation evidence (freeholder and leaseholder each appoint a RICS-regulated enfranchisement surveyor)
• RICS enfranchisement surveyor: a specialist RICS surveyor experienced in leasehold reform valuation is essential for freeholders facing an enfranchisement claim; the surveyor prepares the freeholder's counter-schedule and, if necessary, expert evidence for the FTT
• Costs: FTT application fees are modest; the real costs are the valuation surveyor fees; the leaseholder generally bears the freeholder's reasonable professional costs of the enfranchisement process under LRHUDA 1993 (reasonable legal and surveyor fees)

LRHUDA 2024 — Other Changes Affecting Enfranchisement Valuation

The Leasehold and Freehold Reform Act 2024 introduced several other changes affecting enfranchisement valuation beyond the abolition of marriage value: (i) Extension of statutory lease extension term: the standard statutory lease extension term for flats under LRHUDA 1993 increased from 90 years to 990 years (in force from 24 January 2025 under the LRHUDA 2024 (Commencement No.1) Order 2024); this substantially increases the value of the extended lease to the leaseholder and correspondingly reduces the freeholder's reversionary interest (since the freeholder must wait 990+ years to recover possession); (ii) Abolition of two-year ownership requirement: leaseholders can now serve enfranchisement claims from the date of purchase without waiting 2 years — immediately expanding the pool of potential enfranchisement claimants; (iii) Ground rent changes: the Leasehold Reform (Ground Rent) Act 2022 banned new ground rents from June 2022; LRHUDA 2024 sets any existing ground rent to a peppercorn (nil) when a lease is extended under the new statutory terms — removing the ground rent capitalisation component from the premium calculation for new extensions; (iv) Hope value: for collective enfranchisement, hope value (the additional value reflecting the prospect that planning permission might be granted for development of the property) has been a controversial element; LRHUDA 2024 limits the circumstances in which hope value can be included in the premium; (v) Prescribed valuation rates: secondary legislation will prescribe the deferment rate and potentially other valuation inputs, removing much of the current flexibility and disputed valuation arguments. Scotland: leasehold reform applies to long leases; the Abolition of Feudal Tenure (Scotland) Act 2000 abolished feu duties and feudal tenure; Scottish long leases (over 175 years) can be converted to ownership under the Long Leases (Scotland) Act 2012.

• 990-year statutory extension: in force since 24 January 2025; the statutory lease extension term for flats increased from 90 years to 990 years; substantially increases extension value to leaseholders and reduces reversionary value for freeholders
• No two-year wait: leaseholders can serve enfranchisement notices from the date of purchase; removes the historic 2-year ownership qualifying period
• Ground rent to peppercorn: on statutory extension, any existing ground rent is reduced to a peppercorn (nil); eliminates the ground rent capitalisation component of the premium for new extensions
• Hope value: LRHUDA 2024 limits hope value inclusion in collective enfranchisement premiums — significant for freeholders of buildings with development potential
• Prescribed rates: secondary legislation will prescribe the deferment rate and other valuation inputs; likely to reduce disputes but will affect the financial outcome for both freeholders and leaseholders

Frequently asked questions