Leasehold and Freehold Reform Act 2024

Part 4Assumptions and other matters affecting determination of market value

Application of this Part of this Schedule

16(1)This Part of this Schedule, except for paragraph 22, applies to the determination of the market value in accordance with this Schedule—

(a)whether or not the standard valuation method is being used, and

(b)whether or not that method is being used because this Schedule requires its use.

(2)Paragraph 22 applies to the determination of the market value in accordance with this Schedule only if the standard valuation method is being used.

Assumptions in all cases: intermediate leases merged and no marriage or hope value

17(1)This paragraph applies when determining the market value of the relevant freehold (on any freehold enfranchisement) or notional lease (on any lease extension).

(2)Assumption 1: it must be assumed that the following occurred immediately before the valuation date—

(a)in the case of the transfer of a freehold house under the LRA 1967—

(i)the merger with the freehold of any lease which the claimant will acquire as part of the statutory transfer;

(ii)the surrender of any lease of the currently leased premises that belongs to the qualifying tenant and is superior to the current lease;

(b)in the case of the grant of an extended lease of a house under the LRA 1967—

(i)the merger with the interest of the person granting the statutory lease of any lease which will be deemed to be surrendered and regranted as part of the statutory grant;

(ii)the surrender of any lease that will be surrendered under paragraph 11(1) of Schedule 1 to the LRA 1967 as part of the statutory grant;

(c)in the case of the collective enfranchisement of a building under the LRHUDA 1993, the merger with the freehold of any lease which the claimant will acquire as part of the enfranchisement;

(d)in the case of the grant of a new lease of a flat under the LRHUDA 1993—

(i)the merger with the interest of the person granting the statutory lease of any lease which will be deemed to be surrendered and regranted as part of the statutory grant;

(ii)the surrender of any lease that will be surrendered under paragraph 10(3) of Schedule 11 to the LRHUDA 1993 as part of the statutory grant.

(3)Assumption 2: it must be assumed (having made assumption 1) that—

(a)the claimant is not seeking, and will never seek, to acquire the relevant freehold or notional lease;

(b)in the case of a collective enfranchisement, the nominee purchaser is not seeking, and will never seek, to acquire the relevant freehold;

(c)any persons holding any leasehold interests in the newly owned premises or any part of those premises (including, in the case of a collective enfranchisement, the qualifying tenants) are not seeking, and will never seek—

(i)to acquire the relevant freehold or notional lease, or

(ii)to dispose of their leasehold interests;

(d)in the case of a lease extension, the freeholder is not seeking, and will never seek, to acquire the notional lease or to dispose of their freehold interest; and

(e)in the case of a freehold enfranchisement where there are two or more freeholders, none of them is seeking, or will ever seek, to acquire any of the relevant freehold which they do not already own.

Accordingly, no marriage or hope value is payable.

(4)This paragraph does not prevent other assumptions from being made when determining the market value as long as they are consistent with assumptions 1 and 2 and the other provisions of this Schedule.

(5)In this paragraph “claimant” means the person or persons making the claim under the LRA 1967 or the LRHUDA 1993 for the freehold enfranchisement or lease extension.

Additional assumption on transfer of freehold house or lease extension: repairing obligations and improvements

18(1)This paragraph applies when determining the market value of—

(a)the relevant freehold on the transfer of a freehold house under the LRA 1967, or

(b)the notional lease on a lease extension.

(2)Assumption 3: it must be assumed—

(a)that the qualifying tenant has complied with any tenant’s repairing obligations under the current lease at the valuation date, so that the property has not been devalued by any breach of those obligations, and

(b)that any improvements to the currently leased premises that have been made by any tenant under the current lease (including the current tenant) at the tenant’s own expense have not been made, unless they were required to be made by any tenant’s repairing obligations under the lease.

(3)In the case of the transfer of a freehold house, if section 3(3) of the LRA 1967 applies to the current lease (successive leases treated as single lease), assumption 3 is to apply only to the one of those leases which is in effect at the valuation date.

(4)This paragraph does not prevent other assumptions from being made when determining the market value as long as they are consistent with assumption 3 and the other provisions of this Schedule.

(5)In this paragraph “tenant’s repairing obligation”, in relation to a lease, means an obligation under the lease (however expressed or described) for the tenant under the lease to repair, maintain or decorate the currently leased premises.

Additional assumptions on collective enfranchisements: repairing obligations, improvements & leasebacks

19(1)This paragraph applies when determining the market value of the relevant freehold on a collective enfranchisement.

(2)Assumption 4: it must be assumed—

(a)as respects each current lease held by a relevant tenant, that the relevant tenant has complied with any tenant’s repairing obligations under the lease at the valuation date, so that the property has not been devalued by any breach of those obligations, and

(b)as respects each current lease held by a participating tenant, any improvements to the currently leased premises that have been made by any tenant under the lease (including the participating tenant) at the tenant’s own expense have not been made, unless they were required to be made by any tenant’s repairing obligations under the lease.

(3)Assumption 5: it must be assumed that the relevant freehold is subject to any leases to be granted in accordance with section 36 of the LRHUDA 1993.

(4)This paragraph does not prevent other assumptions from being made when determining the market value as long as they are consistent with assumptions 4 and 5 and the other provisions of this Schedule.

(5)In this paragraph—

• “relevant tenant” means—

  (a)

  a qualifying tenant, or

  (b)

  a person who is not a qualifying tenant, but only because of section 5(5) and (6) of the LRHUDA 1993 (a person who is the tenant of three or more flats in the building);

• “tenant’s repairing obligation”, in relation to a lease, means an obligation under the lease (however expressed or described) for the tenant under the lease to repair, maintain or decorate the currently leased premises.

Any determination of market value: specified matters to be taken into consideration

20(1)This paragraph applies if any specified matters arise in relation to newly owned premises.

(2)The specified matters that arise must be taken into consideration when determining the market value of those premises.

(3)If the standard valuation method is being used to determine the market value (on any freehold enfranchisement or lease extension), the effect of those specified matters on the market value, including during the period between—

(a)the valuation date, and

(b)the term date of the current lease,

must be taken into consideration.

(4)In this paragraph “specified matters” means—

(a)any defects in the title to the relevant freehold or statutory lease;

(b)any property rights that burden or benefit the title to the relevant freehold or statutory lease;

(c)any burden on, or benefit to, the title to the relevant freehold or statutory lease that arises under or by virtue of legislation (including any permanent or extended rights and burdens that are to be created in order to give effect to section 10 of the LRA 1967 or Schedule 7 to the LRHUDA 1993) or any other law;

(d)any physical characteristics of the newly owned premises giving rise to a liability under or by virtue of legislation or any other law;

(e)any order of a court or tribunal enforceable against the relevant freehold or statutory lease;

(f)any obligation in a contract or other arrangement—

(i)which runs with the newly owned premises, or

(ii)which will bind the owner for the time being of the relevant freehold or statutory lease (including where the owner for the time being is required to ensure that an immediate successor in title enters into the obligation, in particular by a limitation on transfer of the title to the relevant freehold or statutory lease or on registration of such a transfer).

(5)But, as this paragraph has effect subject to any assumptions that must be made in accordance with other provisions of this Schedule, the effect of those assumptions must form part of the determination of what, if any, specified matters arise.

(6)In this paragraph “legislation” means—

(a)an Act of Parliament or Act of Senedd, or

(b)any instrument made under an Act of Parliament or Act of Senedd.

Any determination of market value: current lease gives rise to a right to hold over

21(1)This paragraph applies when determining the market value of the relevant freehold or the notional lease if—

(a)some or all of the newly owned premises are comprised in a current lease which gives rise to a right to hold over under the Local Government and Housing Act 1989, and

(b)the tenant is not holding over under that Act at the valuation date.

(2)That right to hold over, and the likelihood of that right being exercised, is to be taken into consideration in determining the market value only if—

(a)the term date of the current lease is within the period of five years beginning at the valuation date, and

(b)that right to hold over is likely to be exercised.

Standard valuation method: other matters

22(1)This paragraph applies if the standard valuation method is used to determine the market value.

(2)In the case of a lease extension, if the terms of the notional lease differ from the terms of the current lease, the effect of that difference on the market value during the period between—

(a)the valuation date, and

(b)the term date of the current lease,

must be taken into consideration when determining the market value of the notional lease.

(3)In the case of a collective enfranchisement, this Schedule applies with the modification in sub-paragraph (4) if any property comprised in the newly owned premises is demised under a lease, or part of a lease, which the nominee purchaser could not acquire under paragraph 2 of Schedule A1 to the LRHUDA 1993 because of paragraph 2(7) (the tenant under that superior lease is also the qualifying tenant).

(4)In the application of this Schedule to the use of the standard valuation method to value that property, any reference to the current lease has effect as a reference to the lease, or the part of the lease, that could not be acquired under paragraph 2(7) of Schedule A1 to the LRHUDA 1993.

Enfranchisement of house or lease extension: tenant with superior lease

23(1)This paragraph applies when determining—

(a)the market value of the relevant freehold on the transfer of a freehold house under the LRA 1967, or

(b)the market value of the notional lease on a lease extension,

if the qualifying tenant is also the tenant of a relevant superior lease.

(2)A “relevant superior lease” is a lease that—

(a)is superior to the current lease, and

(b)in accordance with paragraph 17(2)(a)(ii), (b)(ii) or (d)(ii) must be assumed to have been surrendered.

(3)After the application of the other provisions of this Schedule for the purposes of calculating the market value, including the assumptions in paragraph 17(2)—

(a)the amount produced by the application of those other provisions must be reduced to take account of the value of the relevant superior lease, and

(b)the amount produced after that reduction is the market value.