Guide
Lease extension calculator: what the premium is actually made of
Updated
Every lease extension calculator online is estimating the same statutory sum. It is worth knowing what that sum is made of, because two of its three parts are matters of valuation opinion and the third disappears entirely above a certain lease length.
The premium is an aggregate of three things
On a statutory lease extension the price is not a market rate or a rule of thumb. Paragraph 2 of Schedule 13 to the Leasehold Reform, Housing and Urban Development Act 1993 defines the premium as "the aggregate of" three components: "the diminution in value of the landlord's interest in the tenant's flat as determined in accordance with paragraph 3", "the landlord's share of the marriage value as determined in accordance with paragraph 4", and "any amount of compensation payable to the landlord under paragraph 5" (legislation.gov.uk).
- Diminution in the landlord's interest
- What the landlord loses by granting 90 further years at a peppercorn rent: the ground rent income given up, and the reversion pushed 90 years further away. Both are valuations, not arithmetic, because both depend on the yield and deferment rate applied.
- The landlord's share of marriage value
- Extending the lease makes the flat worth more than the two interests were worth separately. Paragraph 4(1) gives the landlord "50 per cent. of" that uplift.
- Compensation
- Paragraph 5 covers loss to the landlord's other property caused by the grant. It is nil in most flat extensions and is not something a calculator should be assuming for you.
The 80-year cliff is the only bright line in the calculation
Paragraph 4(2A) is unusually blunt for a valuation provision: "Where at the relevant date the unexpired term of the tenant's existing lease exceeds eighty years, the marriage value shall be taken to be nil." Above 80 years one of the three components is zero by operation of statute. Below it, marriage value appears and grows as the term shortens.
The relevant date is when the tenant's notice is served under section 42, not when the valuation is done or when terms are agreed. A lease at 80 years and a few months is a different calculation from the same lease after the notice is late.
What the 2024 Act has and has not changed
The Leasehold and Freehold Reform Act 2024 replaces this machinery: section 36(5) omits Schedule 13 outright, and section 37 introduces a new method for calculating the price. Neither is in force. The legislation.gov.uk page for section 37 carries the banner "This version of this provision is prospective" and the note "S. 37 not in force at Royal Assent, see s. 124(3)" (legislation.gov.uk). Until a commencement order appoints a date, the premium is still calculated under Schedule 13, marriage value and all.
This is the single most common error in lease extension advice written since 2024. An Act being passed is not the same as its valuation provisions being in force, and no date has been appointed for these.
What a calculator can and cannot know
- It knows the term and the cliff. Unexpired years at the relevant date, and therefore whether marriage value applies at all, are facts.
- It guesses the deferment rate. The rate at which the reversion is discounted is the largest single lever on the answer and it is argued case by case.
- It guesses the relativity. The relationship between the short-lease value and the freehold value drives marriage value, and the graphs used to estimate it disagree with one another.
- It cannot see the lease. A ground rent that doubles, an unusual review clause or a defective term changes the valuation and does not appear in any calculator's inputs.
- It is not evidence. Where the premium cannot be agreed it is determined by the First-tier Tribunal on valuation evidence, and a printout is not that.
Why this page carries no premium figure
No official source publishes a premium for a given lease, and one cannot be derived without a deferment rate and a relativity assumption that are themselves contested. Publishing a number here would mean inventing those two inputs and hiding them, which would make the figure look more solid than the statute it comes from. The components above are what the number is built from; a valuer applies them to your lease and your building.
The landlord's reasonable valuation and legal costs are payable by the tenant under section 33 of the same Act on a freehold claim, and under section 60 on a lease extension, which is why the premium is never the whole of what a statutory extension costs (legislation.gov.uk).