The government's consultation on leasehold enfranchisement valuation rates, which will prescribe deferment and capitalisation rates under the Leasehold and Freehold Reform Act (LAFRA), has been welcomed. However, questions have been raised about its scope.
Vanessa Griffiths, an ALEP Member, expressed concern that the consultation primarily focuses on how to implement a simpler valuation system. She believes it gives insufficient attention to what the new system is intended to value, what constitutes fair compensation, and how different aspects of leasehold reform should interact.
The choice of deferment rate significantly impacts the financial balance between leaseholders and freeholders. Government modelling indicates that, against an existing 5% baseline for flats, a 3% deferment rate could result in leaseholders paying approximately £6.3 billion more to freeholders over a decade. Conversely, a 6% rate could see leaseholders pay around £1.1 billion less.
The consultation also assumes that prescribed rates will apply uniformly across England and Wales. This approach is questioned due to the varied nature of property markets, where growth expectations and risks can differ significantly between regions like London, Cardiff, Manchester, or the North East.
Additionally, the deferment and capitalisation rates are not being changed in isolation. LAFRA aims to abolish marriage value and restrict ground rent in statutory calculations. Separate proposals may also alter existing ground rents. These multiple changes make it challenging to assess a deferment or capitalisation rate without considering their combined effect.