The Two Numbers That Decide What Your Lease Extension Costs

Two percentages decide what a leaseholder pays to extend a lease or buy a freehold. Almost nobody outside the valuation profession has heard of them, yet a change of one point in either can move a premium by thousands of pounds. On 21 October 2026 the government's consultation on what those percentages should be closes, and the figures it settles on will be written into regulations and applied to every lease extension and freehold purchase in England and Wales until the first ten-year review.

This article explains what the deferment and capitalisation rates are, what the government is proposing, who gains and who loses, and what it means for a flat owner who is thinking about selling.

Nothing in the consultation changes the price of a lease extension today, and the sensible course is to plan a sale around the law as it stands.

What the Two Rates Do

When a leaseholder extends a lease under the Leasehold Reform, Housing and Urban Development Act 1993, the freeholder is paid a premium for what they give up. Two parts of that premium are worked out using a percentage rate.

• The deferment rate puts a price on the reversion, which is the freeholder's right to take the flat back when the lease runs out. That right is worth far less today than the flat itself, because the freeholder may have to wait 60 years or more to use it. The deferment rate is the yearly discount that turns the flat's value today into the value of waiting for it. The higher the rate, the less the freeholder is paid for the reversion.
• The capitalisation rate puts a price on the ground rent. After a lease extension the ground rent drops to nothing, so the freeholder is paid a lump sum today in place of all the yearly payments they would have collected. The capitalisation rate is the yearly discount used to turn those future payments into that lump sum. Again, the higher the rate, the smaller the lump sum.

This is the point that catches people out. Higher rates do not mean a higher price. A higher rate means a cheaper lease extension for the leaseholder and a smaller payment for the freeholder. So the consultation comes down to one question: how much money should move from freeholders to leaseholders?

What makes up a lease extension premium

Reversion

Rent

Marriage value

Reversion: about £16,000 Set by the deferment rate The freeholder's right to the flat when the lease ends. Higher rate, smaller block.

Ground rent: about £4,000 Set by the capitalisation rate The rent the freeholder gives up. Higher rate, smaller block.

Marriage value: about £20,000 Not part of the consultation The freeholder's half of the value the extension creates. Paid only at 80 years or fewer. Abolished by the 2024 Act once its valuation rules are in force.

What about marriage value?

There is a third part to how today's lease extension premiums are calculated: marriage value. It is not part of the consultation. The Leasehold and Freehold Reform Act 2024 will abolish it, but that part of the Act is not yet in force, so marriage value still has to be paid on any lease with 80 years or fewer left. Our marriage value guide explains what it is and why the 80-year line matters so much.

Where Today's Figures Come From

The deferment rate has been fixed in practice since 2006, when the Lands Tribunal decided a group of cases known as Sportelli, in which the Cadogan Estate was the landlord. The tribunal built the rate from three parts: a risk-free return of 2.25 percent, a risk premium of 4.5 percent for holding property rather than gilts, less 2 percent for expected long-term growth in house prices. That gave 4.75 percent for houses, with a further quarter point added for flats to reflect the extra management they involve. The Court of Appeal upheld the approach in 2007, and tribunals have applied 5 percent to flats ever since unless a party could show a good reason to depart from it.

The capitalisation rate has never been fixed in the same way. Tribunals have accepted figures between 4.5 and 9 percent, with 5 to 8 percent being typical, depending on how the ground rent is reviewed and how reliable it is. A rent that doubles every ten years is valued differently from one fixed at £50 for the rest of the lease.

The 2024 Act changes the method. Instead of leaving the rates to be argued over in each case, the Secretary of State will prescribe them in regulations, review them every ten years and apply them to every claim in England and Wales where the lease has more than five years to run. The consultation that opened on 7 September 2026 is the government asking what the first set of prescribed rates should be.

What the Consultation Proposes

For the deferment rate, the government sets out three options without saying which it prefers.

1. Keep Sportelli. Carry on with 4.75 percent for houses and 5 percent for flats. The consultation describes the case for this as "continuity and simplicity through the use of the prevailing rates".
2. Update Sportelli with fresh numbers. The Government Actuary's Department reran the Sportelli formula with current data on gilt yields, risk premiums and growth, and arrived at 6.05 percent for houses and 6.3 percent for flats, as at September 2025. The department added that the figures would move if they were recalculated on a different date.
3. Something else. A single rate for houses and flats, or rates that vary with the property.

For the capitalisation rate, there are again three options. The first is a single rate for every ground rent. The second is three rates, one for rents that never change, one for rents that rise in fixed steps and one for rents linked to inflation. The third is a different method altogether.

The consultation includes a worked example to show how the rates combine. A £250,000 flat with 100 years left and a rising ground rent produces a premium of £4,576, using an illustrative 5 percent deferment rate and 6 percent capitalisation rate.

What a Change Would Do to a Premium

The deferment rate matters most for short leases, because the reversion grows as the lease shortens. Take a flat that would be worth £300,000 with a long lease, and that has 60 years left on its actual lease. At 5 percent, the freeholder's reversion is worth roughly £16,000 today. At the actuary's 6.3 percent, it is worth roughly £7,700. That is our own arithmetic rather than a figure from the consultation.

Under today's law the full premium also includes the ground rent and marriage value, and a smaller reversion pushes marriage value up a little, so the saving on the whole premium would be nearer £4,000 than £8,000. Once marriage value is abolished, the full saving would come through. Either way, for a flat at 60 years it is a difference of several thousand pounds.

At 90 or 100 years the reversion is already small, a few thousand pounds at most, so a higher rate saves a little money but not a sum that would change anyone's decision. That is why the consultation matters most to exactly the people this website is written for: owners of flats with 50 to 80 years left who are weighing an extension against a sale. Our guide to selling a short lease flat sets out the choices.

Who Gains and Who Loses

Leaseholders with short leases gain from higher rates. That is the government's stated aim: to make extending a lease cheaper and more predictable.

Freeholders lose. They are not all wealthy estates. Pension funds, charities and insurers hold ground rent portfolios too, and the largest freeholders have taken the 2024 Act to court.

The court case

Six groups of freeholders, including the Cadogan and Grosvenor estates, Long Harbour and funds linked to PGIM, argued in the High Court that the Act breaches their property rights. They lost on 24 October 2025. On 1 April 2026 the Court of Appeal gave five of the groups permission to appeal, and the hearing is listed for April 2027, over four and a half days.

Three parts of the Act are under challenge:

• the abolition of marriage value;
• the cap of 0.1 percent of the flat's value on the ground rent that can be counted in a valuation;
• the rule that leaseholders no longer pay the freeholder's costs.

The prescribed rates themselves are not before the court. Ministers have said they will implement the valuation reforms whatever the outcome. None has started yet, though, and the housing minister told the Commons in March 2026 that drafting errors in the Act must be corrected first. We looked at what the delays have already cost sellers in our April article on reform uncertainty.

The Other Side of the Argument

Higher rates are not the whole story. Three points cut the other way.

The actuary's figures are a snapshot

The Government Actuary's Department said its 6.05 and 6.3 percent figures were right "as of September 2025" and would change if the sums were run again on another date. Gilt yields have swung a long way since 2006 and will move again. Yet once a rate is prescribed it is reviewed only every ten years. A figure that was right on the day it was set could be wrong for most of the decade that follows. That is one reason the Regulatory Policy Committee asked the government to explain how it weighs "simplicity and certainty, against the loss of case-specific valuation evidence".

Nobody has put a figure on the money changing hands

The government's impact assessment treats the money that moves from freeholders to leaseholders as a transfer, not a cost, so it is left out of the sums. The assessment instead leans on an earlier estimate that valuation reform will save £418 million in fees and professional time. The committee notes that only a small slice of that would need to be real for the policy to pay for itself. That is a normal way to assess a regulation. It does mean, though, that neither a freeholder nor a leaseholder can tell from the consultation how much is at stake for them.

Fixed rates end the right to argue

Today a leaseholder with an unusual flat, or a freeholder with an unusual risk, can put evidence to the tribunal and ask for a different rate. Under the new system the rate is the rate. That is simpler and cheaper, and it is the whole point of the reform. The price is that some individual cases will get the wrong answer, with no way to argue for a different figure.

What It Means If You Are Selling Now

Nothing in the consultation changes a lease extension started today. Three things have to happen before the new rates apply: the drafting errors in the 2024 Act have to be corrected, the regulations that set the rates have to be made, and the freeholders' appeal, which is not heard until April 2027, has to run its course. The government's record with this Act is slow. Two years after Royal Assent, most of it was still waiting to be switched on. On that record, 2028 is a more realistic date than 2027.

Claims started now stay under the old rules

Under the Act's transitional provisions, a claim started before the new rules begin is priced under the old ones. That cuts both ways. Serve a notice now and you will be priced under today's rates, whatever happens later. Wait for the new rates and your lease keeps getting shorter, and may drop to 80 years, while you wait. We did that sum in Shall I Wait for Leasehold Reform Before Selling?, and the answer has not changed: for most sellers with fewer than 85 years, waiting costs more than it saves.

Buyers price the lease as it is today

A buyer's solicitor values the lease as it stands, and so does the buyer's lender. A flat with 72 years left is a 72-year flat in October 2026, whatever the consultation concludes. The discount a buyer applies reflects what an extension costs today, not what it might cost in a few years.

What Sellers Should Do, and What They Should Not

Do:

• Find out exactly how many years are left. Everything else follows from that number. Our guide on how to check how many years are left on your lease takes a few minutes, and the free Leasehold Advisory Service tool we covered in August gives both the length and a rough extension cost under today's rules.
• Get a valuation if you are between 80 and 85 years. The 80-year line is where marriage value starts, and nothing in the consultation moves it. If you are close, a chartered valuer can tell you what extending now would cost against what it will cost once you cross the line. Our guide to how to extend your lease explains the statutory route.
• Price the flat on today's law. If you are selling with a short lease, expect the buyer to deduct today's extension cost and a margin for the hassle. That is the market, not a negotiating position, and it is what we explain openly in our short lease questions.
• Respond to the consultation if it affects you. It is open to anyone until 21 October, not only to valuers and freeholders. A short response from a flat owner facing a £20,000 premium adds the kind of real-world figure the consultation is short of.

Do not:

• Do not delay a sale to wait for the new rates. There is no date, the court case runs to at least April 2027, and your lease gets shorter every month you wait. If an extension would make the flat easier to sell, the choice is between extending now under today's rules or selling as it stands, not between now and a cheaper future.
• Do not serve a section 42 notice expecting the new valuation. A claim started under the current rules is valued under the current rules, including marriage value below 80 years. Take advice before you serve anything.
• Do not tell a buyer the extension "will be cheaper soon". It may be, for some leases, at some point. A buyer's solicitor will treat it as speculation, and under the material information rules that govern listings, a confident claim you cannot support is a problem rather than a selling point.
• Do not read a higher rate as a higher cost. It is the other way round. A higher deferment or capitalisation rate means a lower premium for the leaseholder, because the freeholder's future interest is discounted more heavily.

Our View

We buy flats with short leases, so we see this argument from the practical end. Nobody comes to us because they want to discuss the government's consultation on leasehold valuation rates. They come because a buyer has pulled out, a lender has said no, or a quote for extending the lease has arrived that they cannot afford. Higher rates would help some of those people, but not for a while.

That wait is the problem. The Act is two and a half years old. The valuation reforms still need corrections to the Act, then regulations, and a court case hangs over both. The rates come last of all. A seller who plans around any of this is planning around a date that nobody can give.

Take an owner whose lease has 82 years left. Sell this winter and the flat is still above the 80-year line, so a buyer's extension cost is modest and most lenders will lend. Wait for the reforms, and by 2028 the lease is at 80 years. If the reforms have not landed by then, which on the government's record is quite possible, marriage value now applies and the extension cost has jumped by thousands of pounds. If they have landed, the owner has saved part of the premium, but has carried the flat, the service charges and the risk of the market for two years to do it.

If a short lease is what stands between you and a sale, a direct sale to a cash buyer takes the lender, and the lender's view of the lease, out of the process. The trade-off is price. A cash offer is usually 15 to 30 percent below open market value, and we explain why on our how it works page.

This article reflects the position on 8 October 2026 and is general information, not legal or valuation advice. The consultation is a proposal, not law, and the rates eventually prescribed may differ from any figure discussed here.