Leasehold and Freehold Reform Act 2024

Step 2 (freehold enfranchisement): determine the value of the freehold reversion (the “reversion value”)

27 (1) This version of step 2 applies to freehold enfranchisements.

(2) Step 2: for the newly owned premises which are subject to the standard valuation method (the “premises being valued”)—

(a) determine the market value of those premises, and

(b) then reduce that market value by using this formula:

where—

• d is the applicable deferment rate;

• n is the period (in years) that begins with the valuation date and ends at the end of the term of the current lease;

• v is the market value.

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

(a) in the case of the transfer of a freehold house 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, the share of the relevant freehold market value which is attributable to the premises being valued.

(4) The “relevant freehold market value” is 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.

(5) In the case of a collective enfranchisement, step 2 is to be followed separately in relation to each part of the premises being valued that is subject to a different current lease.

(6) In this Schedule the amount determined under step 2 in relation to the premises being valued, or a part of those premises, is referred to as the “reversion value” of the premises or part.

(7) If a current lease is a deemed single lease, step 2 is to be followed separately in relation to each constituent lease (as if the constituent lease were itself a current lease).

(8) In this paragraph “applicable deferment rate”, in relation to the determination of the reversion value of premises, means the deferment rate prescribed in regulations made by the Secretary of State that is applicable to that determination — and for this purpose a “deferment rate” is a rate applied to an anticipated future receipt to ascertain its value at an earlier date.

(9) A statutory instrument containing regulations under this paragraph is subject to the negative procedure.

(10) The Secretary of State must review the deferment rate or rates every ten years.