The Three Components of the Statutory Valuation Formula
Under Schedule 13 of the Leasehold Reform, Housing and Urban Development Act 1993, chartered valuation surveyors calculate the premium using three core actuarial formulas:
1. Capitalisation of Ground Rent: The freeholder loses their contractual right to collect ground rent. Surveyors discount the future income stream to a single lump-sum figure using a capitalisation rate (typically 6% to 7% depending on whether ground rent doubles or follows RPI inflation).
2. Reversionary Value: The freeholder loses the right to take full possession of the property at the end of the current lease. Surveyors take the freehold vacant possession value of the flat and discount it to today's money using the statutory 'Sportelli deferment rate' of 5.0% for residential flats.
3. Marriage Value (Sub-80 Years Only): When a short lease (e.g. 72 years) is extended, the market value of the flat jumps significantly. This combined extra value is called 'marriage value'. The 1993 Act requires the leaseholder to pay 50% of this extra value directly to the freeholder.
| Valuation Element | 95-Year Lease (Above 80 Yrs) | 72-Year Lease (Below 80 Yrs) | What It Represents |
|---|---|---|---|
| Diminution in Freeholder Ground Rent | £2,500 – £4,000 | £3,500 – £5,500 | Present discounted value of lost ground rent |
| Diminution in Freeholder Reversion | £2,800 – £3,500 | £8,500 – £11,000 | Discounted value of delaying possession by 90/990 yrs |
| Marriage Value (50% Freeholder Share) | £0.00 (Zero) | £12,000 – £20,000 | 50% split of the market value uplift |
| Total Statutory Premium Payable | £5,300 – £7,500 | £24,000 – £36,500+ | Massive jump once lease drops below 80 years! |
The 80-Year 'Marriage Value Cliff Edge'
The table above demonstrates why conveyancers urge flat owners never to let their lease slip below 80 years.
At 81 years, marriage value is legally £0, keeping the premium minimal. The moment the lease hits 79 years and 364 days, marriage value triggers automatically, often tripling the total cost overnight.