Leaseholders with shortening leases are asking whether to extend their lease now or wait for new legislation to be finalised. The Leasehold and Freehold Reform Act 2024 is set to change the economics of statutory lease extensions, but there is no straightforward answer for homeowners.
The Act intends to remove marriage value, cap ground rent in valuation calculations, and provide 990-year extensions at a peppercorn ground rent. However, the government's Leasehold enfranchisement valuation rates consultation is still ongoing for key deferment and capitalisation rates.
For leases with 30 to 80 years remaining, marriage value can be a substantial part of the current premium. This creates an incentive for some leaseholders in this group to wait for greater clarity, as they may benefit from the abolition of marriage value and changes to ground rent treatment and process costs.
However, the exact valuation rates and implementation date of the new regime are not yet known. Illustrative government figures show that changing the deferment rate from 5% to 4% could significantly increase the reversion element of a valuation for a £250,000 flat with 80 years remaining.
For very short leases, perhaps 10 to 30 years remaining, the freeholder's reversionary interest becomes more important. In these cases, waiting may not necessarily produce a better outcome, as the deferment rate under the future regime is uncertain, unlike the current known rate.