Leasehold and Freehold Reform Act 2024

Rent (including a notional capped rent) that is to be used for determining the term value

26 (1) The rent under the current lease must be used in step 1 to determine the lease’s term value.

(2) If only some of the property demised by the current lease is subject to the standard valuation method, the rent under the lease that is attributable to that property must be used in step 1.

(3) But, as respects any period when the notional annual rent for the current lease is lower than the actual annual rent, the notional annual rent must be used instead (and accordingly sub-paragraphs (1) and (2) are not to apply in relation to that period).

(4) The “notional annual rent” for the current lease is an amount equivalent to 0.1% of the market value of the premises being valued.

(5) The “premises being valued” are the premises that—

(a) are demised by the current lease, and

(b) are subject to the standard valuation method.

(6) The “market value” of the premises being valued is—

(a) in the case of a freehold enfranchisement, or lease extension, under the LRA 1967, the amount which the freehold of the premises being valued could have been expected to realise if it had been sold on the open market with vacant possession by a willing seller at the valuation date;

(b) in the case of a collective enfranchisement or lease extension under the LRHUDA 1993, the share of the relevant freehold market value which is attributable to the premises being valued.

(7) The “relevant freehold market value” is —

(a) in the case of a collective enfranchisement, the amount which the freehold to be acquired on the collective enfranchisement could have been expected to realise if it had been sold on the open market with vacant possession by a willing seller at the valuation date;

(b) in the case of a lease extension under the LRHUDA 1993, the amount which the freehold of the building and any other land which contain the premises being valued could have been expected to realise if it had been sold on the open market with vacant possession by a willing seller at the valuation date.

(8) The “actual annual rent” is the rent referred to in sub-paragraph (1) or (2).

(9) The notional annual rent must not be used in step 1 if—

(a) no premium was payable on the grant of the current lease, or

(b) the current lease was granted on the basis that—

(i) the premium was lower, and the rent was higher, than each would otherwise have been, and

(ii) the value of paying the lower premium was (at the time of the grant) broadly equivalent to, or greater than, the capitalised value of the extra rent.

(10) It must be assumed that sub-paragraph (9)(b) is not applicable unless it is shown to be applicable.

(11) If section 3(3) of the LRA 1967 applies to the current lease (successive leases treated as a single lease), sub-paragraph (9) is to apply only if the one of those leases which is in effect at the valuation date meets the condition in sub-paragraph (9)(a) or (b).

(12) If the current lease is a shared ownership lease—

(a) the rent that is to be used for the purposes of sub-paragraph (1) and (2) is the rent that is payable under the lease in respect of the tenant’s share in the property demised by the lease;

(b) where the lease does not reserve separate rents in respect of the tenant’s share in the demised premises and the landlord’s share in the property demised by the lease, any rent reserved is to be treated as reserved in respect of the landlord’s share.