Landlords who own leasehold flats have until 11.59 pm on 23 September 2026 to influence the rates that may determine how much they pay to extend their leases, buy their freeholds or remove ground-rent liabilities under the Government’s new valuation system.
The Government consultation on leasehold enfranchisement valuation rates runs to 39 questions and quickly becomes difficult for anybody who is not an enfranchisement valuer.
Even the Housing Minister acknowledges that much of the detail requires specialist legal and valuation knowledge. The Government nevertheless says it wants to hear from individual leaseholders and freeholders, as well as the professionals who advise them.
This may look like a technical debate between valuers about fractions of a percentage point. In reality, the rates eventually selected could move thousands of pounds from one side of a leasehold transaction to the other.
What is changing?
The Leasehold and Freehold Reform Act 2024 provides for a new Standard Valuation Method covering statutory lease extensions, freehold purchases and ground-rent buyouts.
Once the relevant provisions take effect, leaseholders will be entitled to lease extensions of 990 years at a peppercorn ground rent. The new calculation will remove marriage value and will generally cap the ground rent taken into account at 0.1% of the property’s freehold vacant possession value.
The reforms also provide that each party should normally pay its own legal and valuation costs, although there will be limited exceptions. Those exceptions are the subject of a separate Government consultation on enfranchisement process costs.
These changes are not yet fully in force. The Government must first prescribe the valuation rates through regulations and correct acknowledged problems in the 2024 Act through further primary legislation.
A group of freeholders has also challenged parts of the reforms in the courts. According to the Government’s plain-English explanation of the proposed changes, the Government won in the High Court, although that decision remains under appeal.
Nobody should therefore assume that the new calculation can already be used, or delay an urgent lease extension solely because a cheaper regime has been promised. The correct timing will depend upon the length and terms of the lease, the owner’s plans for the property and their appetite for legislative risk.
The two rates that matter
The consultation concerns the capitalisation rate and the deferment rate.
The capitalisation rate is used to place a present-day value on the ground rent that the freeholder would otherwise receive during the remaining lease term. This produces what is called the “term value”.
The deferment rate is used to value the freeholder’s right to recover possession of the property when the lease eventually expires. This produces the “reversion value”.
The term value and reversion value are then added together, together with any other applicable adjustments, to calculate the premium payable by the leaseholder. Only the term value is relevant where somebody uses the new right to buy out the ground rent without extending the lease.
The counterintuitive point is that higher valuation rates usually mean a lower premium for the leaseholder.
These are discount rates. The higher the rate used to discount money or property rights that will be received in the future, the lower their value today.
What difference can 1% make?
The Government gives the example of a flat worth £250,000 with 100 years remaining on the lease. Its ground rent starts at £150 and increases by £25 every 20 years.
Using a capitalisation rate of 6%, the future ground rent has a present value of £2,675. Using a deferment rate of 5%, the freeholder’s right to recover a £250,000 property after 100 years has a present value of £1,901. The resulting illustrative premium is £4,576.
The example and the way the calculation works are set out in the full consultation document.
Using the same £250,000 property value and 100-year period, but increasing the deferment rate from 5% to 6%, reduces the calculated reversion value from approximately £1,901 to £737.
The effect becomes more noticeable as the remaining lease term shortens. With 80 years remaining, the same £250,000 reversion is worth approximately £5,044 at 5%, compared with £2,363 at 6%.
Further modelling is contained in the Government’s leasehold enfranchisement valuation rates impact assessment.
These figures do not represent the complete cost of every lease extension. They simply demonstrate why the percentage selected matters. A higher deferment rate reduces what the leaseholder pays for the freeholder’s future reversion, while a lower rate increases it.
The same principle applies to the capitalisation rate. A higher rate generally reduces the present value attributed to the freeholder’s ground-rent income, while a lower rate increases it.
The Sportelli rates
The current deferment-rate benchmarks come from the Lands Tribunal decision in Cadogan v Sportelli, commonly known simply as Sportelli.
The case established benchmark rates of 4.75% for houses and 5% for flats with more than 20 years remaining on the lease.
The additional 0.25% for flats reflected the Tribunal’s view that flats presented greater management complexities and risks, including communal repairs and service-charge disputes.
The Sportelli calculation used three principal components:
- a 2.25% risk-free rate, based on index-linked government securities;
- a 4.5% property-risk premium, with an additional 0.25% for flats; and
- expected long-term real property growth of 2%, which was deducted from the other components.
The resulting calculation was:
- Houses: 2.25% + 4.5% − 2% = 4.75%.
- Flats: 2.25% + 4.75% − 2% = 5%.
The Government is now considering whether to retain Sportelli, update its components using more recent evidence or adopt a different methodology.
Once the new Standard Valuation Method applies, the prescribed rates will ordinarily be compulsory. There will be far less scope to argue that a different rate should apply to a particular property.
Is Sportelli now out of date?
The Government asked the Government Actuary’s Department to examine the figures. Its full analysis is available in the Government Actuary’s deferment rates report.
A mechanical attempt to update parts of the original Sportelli formula produced a deferment rate of just 1.61%. The actuaries warned that this calculation contained inconsistencies and did not recommend using it in isolation.
A broader exercise, involving updated data and actuarial judgement, produced rates of 6.05% for houses and 6.3% for flats. Other approaches produced house rates of 5.05% and 5.85%.
The Government Actuary’s Department said these figures were not intended to represent upper and lower limits. The Government has also made clear that the consultation is not simply asking whether the rates should be fixed at 6.05% and 6.3%.
The enormous range between 1.61% and 6.3% illustrates the difficulty. The result depends not only on economic data, but also on assumptions about future property growth, investment risk and the period over which financial information should be measured.
Keeping Sportelli would provide continuity, although it would preserve assumptions examined nearly 20 years ago. Updating it could produce a more current result, but different experts may legitimately interpret the evidence in different ways.
What about ground rents?
The capitalisation-rate questions are separate from Sportelli.
Capitalisation rates currently vary according to the characteristics of the ground rent. A large, secure or escalating rent may be viewed differently from a small fixed rent.
The Government’s limited review of Tribunal decisions found capitalisation rates ranging from 4.5% to 9%. In the First-tier Tribunal cases examined, 88% of the rates fell between 6% and 7%, with both the mean and median around 6.5%.
The Government is considering three broad options:
- one capitalisation rate for every relevant ground rent;
- three rates, depending upon whether the rent is fixed, increases by fixed amounts or is linked to something such as inflation; or
- another approach proposed by respondents.
One universal rate would be easier to understand and would remove arguments about which category applies. It would inevitably produce winners and losers because not every ground-rent income stream has the same investment value.
Three rates might provide a closer fit, although unclear or unusually drafted rent-review provisions could reintroduce professional fees, disputes and bargaining pressure.
The debate is further complicated by two different ground-rent caps. The 2024 Act generally limits the ground rent used in the enfranchisement calculation to 0.1% of the freehold value.
The Government also intends to cap most existing residential ground rents at £250 a year, reducing them to a peppercorn after 40 years. That wider proposal is discussed in the Government’s consultation concerning the ground-rent cap and quid pro quo leases.
This should not become a competition to name the highest number
Leaseholder campaigners understandably want higher discount rates because those rates generally reduce the price of extending a lease or buying a freehold.
Freeholders have the opposite commercial interest because lower rates increase the present value placed upon their ground-rent income and reversionary rights.
The Government says the prescribed rates should not be manipulated either to deliver an additional discount to leaseholders or to compensate freeholders for marriage value and other income lost under the reforms.
Its stated objective is to estimate the present value of legitimate property interests while producing a system that is stable, predictable and less dependent upon professional negotiation.
That is the right starting point. The consultation should not be decided merely by counting how many leaseholders ask for the highest rate or how many freeholders demand the lowest. The final rates should be supported by transparent, long-term financial and property evidence.
How should an ordinary Property118 reader respond?
A landlord who owns a leasehold flat can respond as an individual leaseholder. The Government has expressly said that the same rates should apply to owner-occupiers and buy-to-let landlords.
There is no proposal to charge a landlord more simply because the flat is rented rather than occupied as a home.
Readers who also own freehold interests should answer honestly from the capacity in which they are responding and explain any experience they have on both sides of enfranchisement transactions.
There is no benefit in inventing technical expertise. Where the consultation offers a “don’t know” answer, that is more credible than selecting a percentage without understanding the valuation assumptions behind it.
Where a free-text box asks for a numerical rate, respondents can say that they do not have the professional evidence needed to nominate an exact figure while still expressing a view about the principles that should govern the decision.
A defensible response on the deferment rate
For an ordinary leaseholder landlord, there is a reasonable case for ranking the deferment options in the following order.
First: update Sportelli.
The existing methodology has provided stability, but the underlying economic assumptions are old enough to justify a transparent and evidence-led review.
Second: retain the existing Sportelli rates.
Keeping 4.75% for houses and 5% for flats would at least provide continuity if the Government cannot establish that an alternative is supported by stronger evidence.
Third: introduce more complicated alternative rates.
Property-specific adjustments and separate rates for shorter leases might produce greater theoretical precision, but they would also risk bringing valuers, disputes and additional costs back into a system that is supposed to become simpler.
That ranking does not require the respondent to nominate 6.05%, 6.3% or any other precise figure. The Government Actuary’s work demonstrates why an update deserves consideration, but it does not establish one indisputable answer.
A defensible response on the capitalisation rate
There is also a reasonable case for ranking a single capitalisation rate first, three rates based on the ground-rent review mechanism second and more complicated alternatives third.
The purpose of prescribing a rate is partly to remove the cost and uncertainty of negotiating it. A single rate is most likely to achieve that objective, particularly once the 0.1% valuation cap and any wider £250 ground-rent cap have reduced the differences between various income streams.
The precise percentage remains important. The Government should publish full worked examples showing how its selected rate affects fixed, escalating and inflation-linked rents across properties of different values and lease lengths.
It should also explain why the chosen figure is consistent with market evidence, rather than asking the public to accept that it represents a fair compromise.
Suggested wording for non-specialist respondents
Readers may wish to adapt the following wording rather than copying it without considering their own circumstances:
I am responding as a residential leaseholder and landlord. I support the principle of nationally prescribed valuation rates because this should improve certainty and reduce the professional costs and bargaining disputes associated with lease extensions and freehold purchases.
The rates should be based on transparent, current and long-term financial and property evidence. They should not be selected merely to transfer value from freeholders to leaseholders, but outdated assumptions should not be preserved simply because they are familiar.
I therefore favour an evidence-led update of the Sportelli methodology, with retention of the existing rates as the fallback if the Government cannot demonstrate that its replacement is better supported.
I favour a single capitalisation rate unless the Government can show that different rates for different ground-rent review clauses would produce materially fairer outcomes after the statutory caps have been applied. Any additional complexity should be justified by a significant improvement in fairness because complexity is likely to create further professional costs and disputes.
The Government should publish clear worked examples before setting the final rates and should explain how material long-term economic changes will be dealt with during the period for which the rates remain in force.
The same valuation rules should apply to owner-occupiers and buy-to-let leaseholders.
Do not confuse the consultation with the law today
The proposed reforms may eventually make many lease extensions cheaper, particularly where a lease has 80 years or fewer remaining and marriage value currently applies. That does not mean every leaseholder should wait.
The new valuation system needs further legislation and regulations before it can operate. Every lease is different, and a leaseholder’s commercial circumstances, refinancing plans and intended disposal timetable may be more important than the prospect of a future saving.
Leaseholders facing a sale, refinancing problem or rapidly shortening lease should consider advice on their present options rather than assuming that reform will arrive within a particular timetable.
Free and independent general information is also available from the Leasehold Advisory Service.
The consultation applies to England and Wales and closes at 11.59 pm on 23 September 2026.
Responses can be submitted through the Government’s online survey or sent by email to [email protected].
Respond to the leasehold valuation rates consultation
The percentages may appear dry and technical, but the rates eventually selected could remain in use for up to ten years. For landlords with one leasehold flat or an entire portfolio, that makes this a consultation worth understanding and responding to.
This article provides general information and should not be treated as legal or professional valuation advice. Leaseholders should obtain advice appropriate to their own lease and circumstances before making decisions about a lease extension or freehold purchase.