Leasehold and Freehold Reform Act 2024

Step 2 (lease extensions): determine the value of a 990 year lease (the “reversion value”)

28 (1) This version of step 2 applies to lease extensions.

(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 a lease of the premises being valued that is granted—

(i) for a term of 990 years beginning with the date for valuation, and

(ii) otherwise on the same terms as the statutory lease that will be granted under the LRA 1967 or the LRHUDA 1993, including the peppercorn rent and the property demised, 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 lease of the premises being valued is the amount which that lease 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.

(4) 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).

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

(6) But if the current lease is a shared ownership lease—

(a) the amount determined under step 2 must be multiplied by the tenant’s share in the premises being valued, and

(b) the amount so calculated is the “reversion value” of the premises being valued.

(7) 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 by virtue of the regulations — and for this purpose a “deferment rate” is a rate applied to an anticipated future receipt to ascertain its value at an earlier date.

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

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