How Lease Extension Costs Are Calculated

Summary

Extending a UK leasehold flat’s lease involves paying a premium to the freeholder. The premium has three components: the value of the ground rent the freeholder gives up, the loss in reversion value (the freeholder’s interest in eventually getting the property back), and marriage value (50% of the increase in property value due to the longer lease). The calculator estimates this premium based on the property value, current lease length, and ground rent.

How it works

The three components

1. Ground rent capitalisation The freeholder loses future ground rent income. The premium compensates for the present value of all remaining ground rent payments:

Present value = Sum of (ground rent / (1 + discount rate)^n) for each year n

If ground rent escalates (doubles every 25 years, increases with RPI, etc.), each future payment is calculated at the increased rate.

2. Reversion (freeholder’s interest) At the end of the current lease, the property reverts to the freeholder. By extending the lease, the freeholder loses this future windfall. The premium compensates for the present value of this reversion:

Reversion value = Property freehold value x (1 / (1 + deferment rate)^remaining years)

The deferment rate is typically 5% for flats (set by the Sportelli tribunal).

3. Marriage value (leases under 80 years only) When a short lease is extended, the property’s value jumps significantly. The leaseholder must pay the freeholder 50% of this value increase:

Marriage value = 50% x (Extended lease value + Freeholder’s new interest - Current lease value - Current freeholder’s interest)

Once the lease drops below 80 years, marriage value becomes payable and often makes up the majority of the premium.

The 80-year cliff

Lease extension costs jump dramatically as the lease approaches and drops below 80 years. At 85 years remaining, marriage value is zero. At 75 years, it can add tens of thousands to the premium. This is why advisors recommend extending before the lease falls below 80 years.

Worked example

Flat value: £300,000, Lease: 72 years remaining, Ground rent: £250/year (fixed)

1. Ground rent capitalisation: present value of £250/year for 72 years at 5% = approximately £4,800
2. Reversion: £300,000 x (1/1.05^72) = £300,000 x 0.0300 = £9,000
3. Current lease value: £270,000 (90% of freehold value with 72-year lease)
4. Extended lease value: £300,000 (virtually freehold with 162-year extension)
5. Marriage value: 50% x (£300,000 - £270,000) = £15,000
6. Total premium: £4,800 + £9,000 + £15,000 = £28,800

Plus professional fees (solicitor + surveyor): approximately £2,000-£4,000.

Same flat at 85 years remaining (no marriage value):

1. Ground rent capitalisation: approximately £4,900
2. Reversion: £300,000 x (1/1.05^85) = approximately £4,800
3. Marriage value: £0 (above 80 years)
4. Total premium: approximately £9,700

The 13-year difference in lease length more than triples the cost.

Inputs explained

• Property value — current market value with the existing lease
• Remaining lease — years left on the current lease
• Ground rent — annual ground rent and any escalation terms
• Flat or house — different deferment rates apply

Outputs explained

• Estimated premium — the total payment to the freeholder
• Component breakdown — ground rent, reversion, and marriage value separately
• Urgency indicator — warning if the lease is approaching 80 years
• Cost comparison — extending now vs waiting (showing how costs increase as the lease shortens)

Assumptions & limitations

• Uses the Sportelli deferment rate of 5% for flats. Actual rates may vary.
• Relativity (the relationship between short-lease and freehold values) is contested and varies by location. The calculator uses published relativity graphs.
• The Leasehold and Freehold Reform Act 2024 will abolish marriage value and set standard calculation methods, but implementation is expected no earlier than late 2026.
• Professional valuation and legal fees (£2,000-£5,000) are separate from the premium.
• The freeholder’s own legal and valuation costs must also be paid by the leaseholder under current law.
• Escalating ground rents (especially doubling clauses) can significantly increase the premium.