I support the Government’s aim of making leasehold enfranchisement simpler.

Anyone who works in this area knows how technical the present system can be and how difficult it is for a leaseholder to understand at the outset what a lease extension or freehold purchase is likely to cost.

The Leasehold and Freehold Reform Act (LAFRA) is intended to change that by introducing a Standard Valuation Method and allowing the Government to prescribe the deferment and capitalisation rates used within it.

Greater certainty should reduce some disputes and make premiums easier to estimate. But there is a trade-off: the more the valuation is standardised, the less room there is to reflect the particular property being valued. 

Simplicity is not the same as fairness

Enfranchisement valuation has traditionally relied on market evidence, established case law and professional judgement. That does not produce perfect outcomes and it can create cost and uncertainty. That said, it does allow unusual circumstances to be considered.

A prescribed rate moves us towards a more administrative form of valuation. The same assumption is applied across a wide range of properties because consistency itself has value. The question is whether that consistency comes at the price of rougher justice in individual cases.

Consider the deferment rate, which values the freeholder’s right to recover the property at the end of the lease. The current benchmark is 5% for flats and 4.75% for houses.

Government modelling shows that for an illustrative £250,000 flat with 80 years remaining, reducing the rate from 5% to 4% increases the reversion value from £5,044 to £10,846. Raising it to 6% reduces that element to £2,363. This shows just how much can turn on one percentage point. 

One rate, many property markets

The difficulty is that property is heterogeneous. A flat in prime central London is not the same investment as a similar flat in a lower-growth regional market; buildings age differently; lease structures vary, and ground rents can have different review patterns and risk profiles.

Under a more individualised approach, some of those differences can feed into the valuation evidence. A national prescribed rate potentially smooths over part of that variation.

Some leaseholders may therefore pay less than an individually assessed market valuation would suggest while others may pay more, and the same is true in reverse for freeholders.

That does not mean national rates are inherently unfair – after all, the current system has its own imperfections and certainty has real economic value. But if a prescribed rate reduces professional costs, shortens negotiations and allows both sides to understand their position earlier, many people will regard some loss of precision as a reasonable price.

There will be winners and losers

What concerns me is any suggestion that simplification itself removes the distributional consequences.

Government modelling estimates that, against the existing 5% baseline for flats, a 3% deferment rate could mean leaseholders paying around £6.3 billion more to freeholders over ten years, all else equal. At 6%, leaseholders would instead pay around £1.1 billion less.

This shows very explicitly how different the outcome can be in the case of just a few percentage points. Where the rate is set will create winners and losers and the effect will not necessarily be evenly distributed across lease lengths, property values or markets.

The test is whether the trade-off is proportionate

ALEP supports meaningful leasehold reform and recognise the important role commonhold is expected to play in the future. We do not think the answer is to preserve complexity simply because it is familiar: the existing system can be improved upon.

But reform should be honest about what is being exchanged. Prescribed rates can deliver certainty, accessibility and potentially lower transaction costs. What they cannot deliver is a bespoke valuation for every property.

So for me, the test is not whether the new method is perfectly precise. It is whether the loss of precision is proportionate to the benefits of simplification and whether the chosen rates are grounded in evidence broad enough to produce reasonable outcomes across the market.

If the Government gets that balance right, rougher justice may still be fairer justice overall. If it gets it wrong, certainty will simply make the distortion easier to calculate.

Vanessa Griffiths MRICS, Leasehold Reform & Litigation Consultant and ALEP Member