There is statutory method set out in schedule 13 of the 1993 Act which shows how the lease extension premium will be calculated if you are buying a plus 90 year extension on top of the existing term of your lease. This applies under the 1993 Act only.
This is not so much of a ‘formula’ as an approach to a professional valuation set out in words in the Act. You will still need the services of a surveyor or valuer to advise the likely premium that you will pay.
An approximate indication can be found by looking at a ‘lease extension calculator’ such as the one that appears on the Bishop and Sewell website: bishopandsewell.co.uk/lease-extension-calculator/
Such tools are an approximate guide only but will give you a rough idea of the premium to be paid to extend your lease.
Essentially the premium depends on 3 things: the length of the lease, the capital value of the flat and the amount of ground rent that is payable under the lease.
Without going into lots of detail, the calculation compensates the freeholder for the loss of ground rent income, reflects the capital value of the freehold when the lease expires (i.e reflects the right to receive the flat back when the lease expires) and also when the lease has less than 80 years to run also includes an additional factor called ‘marriage value’ which recognises the up lifting value which occurs when the lease is extended. This splits the ‘profit’ which occurs when this has happened between the landlord and the tenant 50:50 taking into account the ‘term and reversion’ elements already accounted for in working out the compensation of the loss of ground rent and the capital value of the freehold when the lease expires.
- More information about extending your lease.