The government's consultation on leasehold enfranchisement valuation rates focuses on a choice between two percentages, but it also potentially changes who makes key judgements in these valuations. The Leasehold and Freehold Reform Act (LAFRA) grants the Secretary of State the authority to prescribe the deferment and capitalisation rates for the new Standard Valuation Method.
This change could make valuations more predictable, but it also means that assumptions previously developed through valuation evidence and tribunal decisions may increasingly be fixed by the government. The current benchmark deferment rates for flats and houses stem from the 2007 Sportelli decision, established after expert valuation evidence was tested through the tribunal process.
Government analysis of First-tier Tribunal decisions found capitalisation rates ranging from 4.5% to 9%. Under a prescribed system, the tribunal's room for case-specific judgement on these assumptions would be reduced, as the rate would be set in Whitehall before individual properties reach the valuation stage.
Government modelling illustrates the potential impact of these rates. For an illustrative £250,000 flat with 80 years remaining, reducing the deferment rate from 5% to 4% could increase the reversion value from £5,044 to £10,846. Conversely, increasing it to 6% could reduce that element to £2,363.
Across the market, the government estimates that a 3% deferment rate could result in leaseholders paying approximately £6.3 billion more to freeholders over ten years compared to a 5% baseline. A 6% rate, however, could lead to leaseholders paying around £1.1 billion less.