Learn exactly how the RICS deferment rate method calculates your lease extension premium, with fully worked examples for typical UK properties.
The lease extension premium is determined by a legal framework established under the Leasehold Reform, Housing and Urban Development Act 1993 and refined by landmark Tribunal cases. The premium has three components added together:
Uses the Years' Purchase (YP) formula: YP = (1 minus (1 + r) to the power of minus n) divided by r, where r = 0.05 and n = unexpired lease years.
Annual ground rent: £250 | Unexpired term: 72 years | Rate: 5%
YP = (1 minus 1.05 to the power minus 72) / 0.05 = 19.48
Ground rent capitalisation = £250 x 19.48 = £4,870
Formula: Reversion = FV x (1 minus Relativity) divided by (1 + r) to the power n
Relativity expresses the leasehold value as a percentage of freehold value. At 72 years: approximately 95%. At 50 years: approximately 87.5%. At 30 years: approximately 73%.
Formula: MV = 0.5 x (New leasehold value minus Current leasehold value minus Reversion minus GR Capitalisation)
Property freehold value: £350,000 | Lease: 68 years | Ground rent: £300/yr
GR Cap: £300 x 19.2 = £5,760 | Reversion: approximately £2,100
No marriage value (68 years is above 80 in the post-extension lease)
Total Premium: approximately £7,860
Budget an additional £3,500–£6,000 for professional fees: your solicitor (£1,500–£2,500), your surveyor (£700–£1,400), and the freeholder's reasonable costs (£1,500–£2,500 combined) which you are legally obliged to pay.
We'll email you when 2024 Act provisions come into force and when new premium rates are confirmed.
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Calculate Now →This article is for general information only and does not constitute legal or financial advice. Always consult a specialist solicitor and RICS surveyor before taking any action.
We'll notify you when 2024 Act provisions come into force, new rates are published, and when landmark Tribunal decisions affect your premium.