Leasehold Valuation Calculations – 2 Worked Examples
Saturday, 12th March 2011  by: Peter Barry
Over the course of the last few posts we have tried to explain the process of granting a new lease under the terms of the Leasehold Reform and Urban Development Act 1993. We’ve looked at the various elements that have to be taken into account in calculating the premium that the lessee will have to pay to the freeholder and thought that it was about time that we now looked at a worked example of a typical case.
We have talked quite a bit about the concept of ‘marriage value’ and how important it is to apply for a new lease while the existing lease still has more than 80 years to run. In order to demonstrate this we will look at two flats which are identical in every respect, except that one has a lease of more than 80 years and one has a lease of less than 80 years.
Let’s assume that our two flats are situated next door to each other in High Street, Anytown. They are both twobedroom, purposebuilt flats of identical design. The first property is 123, High Street. It has a 99 year lease which commenced on 25th December 1980. The lease will expire on 24th December 2079 and at present has an unexpired term of 68.83 years.
The second property is 125, High Street it also has a 99 year lease, but this lease commenced on 25th December 1995. This lease will expire on 24th December 2094 and at present has an unexpired term of 83.83 years.
Both flats have a ground rent which is set at £50 per year for the first 33 years of the lease and then rises to £100 per year for the next 33 years and £200 per year for the final 33 years of the lease.
For the purpose of this exercise we will assume that both flats will have a market value of £200,000 with a new long lease.
In our previous blogs we have discussed how the freeholder has to be compensated for the loss of ground rent, the potential reversionary value of the flat at the end of the original lease and a share of the ‘marriage value’ if the existing lease has less than 80 years to run.
Let’s look at the calculation for 123, High Street first.
Property 

123, High Street, Anytown 











Valuation Date 

11/03/2011














Lease Details 







Date 

25/12/1980






Term (years) 

99






Expiry Date 

24/12/2079






Unexpired Term 

68.83

years













VALUES 







Value following purchase of extension say 



£200,000


Percentage relativity 





90%


Current lease value 





£181,818


Diminution in Value of Freeholder’s Interest 












Term 1 
RENT 




£50




X YP 
2.83

YEARS @ 
8%

2.4464









£122









Term 2 
RENT 




£100




X YP 
33

YEARS @ 
8%

11.5139




deferred for 
2.83

years 

0.8042865

£926









Term 3 
RENT 




£200




X YP 
33

YEARS @ 
8%

11.5139




deferred for 
35.83

years 

0.0634493

£146
















£1,194









Reversion 
To share of freehold with vacant possession 
£202,020




X PV 
68.83

YEARS @ 
5%

0.0347969









£7,030














Total Diminution 
£8,224

Calculation of Marriage Value 














Value of flat with extension 
£200,000


Reversion 

X PV 
158.83 
Years @ 
5%

0.0004310









£86

Aggregate value of interests after grant of new lease 


£200,086









Less









Existing lessee’s interest 


£181,818



Total of Landlord’s existing interest 

£8,224








£10,044



Take 
50% Marriage value 



£5,022







TOTAL 
£13,246

From the above example we can see that the total amount that will have to be paid by the lessee is £13,246. This is made up of three elements:
Loss of ground rent – £1,194
Loss of reversion – £7,030
Share of Marriage Value – £5,022
As we have discussed before the ‘marriage value’ is basically the difference between the aggregate values of the freeholder’s and lessee’s interests before and after the grant of the new lease. The legislation says that the ‘marriage value’ is split equally between the freeholder and the lessee, so in the example above the freeholder is entitled to £5,022 under this heading.
Let’s now look at the adjoining flat, 125, High Street which still has 83.83 years to run on it’s lease.
Property 

125, High Street, Anytown 











Valuation Date 

11/03/2011














Lease Details 







Date 

25/12/1995






Term (years) 

99






Expiry Date 

24/12/2094






Unexpired Term 

83.83

years













VALUES 







Value following purchase of extension say 



£200,000


Percentage relativity 





98%


Current lease value 





£197,980










Diminution in Value of Freeholder’s Interest 












Term 1 
RENT 




£50




X YP 
17.83

YEARS @ 
8%

9.3307









£467









Term 2 
RENT 




£100




X YP 
33

YEARS @ 
8%

11.5139




deferred for 
17.83

years 

0.2535446

£292









Term 3 
RENT 




£200




X YP 
33

YEARS @ 
8%

11.5139




deferred for 
50.83

years 

0.0200019

£46
















£805

Reversion 
To share of freehold with vacant possession 
£202,020




X PV 
83.83

YEARS @ 
5%

0.0167379









£3,381






















Total Diminution 
£4,186

Calculation of Marriage Value 














Having regard to the long unexpired lease term marriage value is disregarded. 
£200,000


Reversion 

X PV 
173.83 
Years @ 
5%

0.0002073









£41

Aggregate value of interests after grant of new lease 


£200,041























£197,980








£4,186
























TOTAL 
£4,186

In this case we can see that the amount that will have to be paid by the lessee to the freeholder is only made up of two elements:
Loss of ground rent – £805
Loss of reversion – £3,381
As the lease still has more than 80 years to run the Leasehold Reform Act says that ‘marriage value’ is not applicable.
In the first case the total amount that the lessee would have to pay is £13,246. In the second case the total amount that the lessee will have to pay is £4,186.
The two flats as we have said are identical and we can, therefore, see why it is important to renew the lease whilst it still has more than 80 years to run.
In the next few posts we will look in a bit more detail at the formalities of the legislation, but hopefully, we have now given some insight into how the Leasehold Reform Act works in principle.
Should you require advice on extending your lease or enfranchising the Freehold of your property you can call us on 020 8360 7615.