Research and analysis

RPC opinion: impact of leasehold enfranchisement valuation rates

Published 17 July 2026

Lead department: Ministry of Housing, Communities and Local Government

Summary of proposal: to prescribe the deferment and capitalisation rates used in the Standard Valuation Method under the Leasehold and Freehold Reform Act 2024 (LFRA). These are used to calculate the term and reversion elements of enfranchisement premiums for lease extensions, freehold acquisitions and ground rent buy-outs. The consultation seeks views on approaches to setting these rates.

Submission type: impact assessment (IA) – 13 May 2026

Legislation type: secondary legislation

Policy stage: consultation

RPC reference: RPC-MHCLG-26166-IA(1)

Opinion type: formal

Date of issue: 24 June 2026

RPC opinion rating

Fit for purpose:

• the impact assessment (IA) provides a reasonable assessment of the direct business impacts arising from prescription of enfranchisement valuation rates, particularly familiarisation costs
• it explains the market failures and why legislative prescription is needed to commence the new valuation method
• the analysis is proportionate to a case where the final rates are not yet chosen, and the main impacts are transfers that depend on future decisions
• the final IA should explain how the approaches to setting deferment and capitalisation rates are methodologically aligned, or why different approaches are appropriate

RPC summary

Rationale and options: Green

The IA sets out a rationale based on information asymmetry, inequality of negotiating power, avoidable valuation and dispute costs, and the need to prescribe rates for the new valuation method to commence. The final IA should explain how the approach will balance simplicity and certainty against the loss of case-specific valuation evidence.

Identification of types and areas of impacts: Green

The IA identifies the main direct business impact as familiarisation cost and estimates it. It explains why transfer effects from the rates are excluded from the equivalent annual net direct cost to business.

Small and micro business assessment: Green

The IA discusses the main channels through which smaller firms may be affected, particularly valuers and some freeholders. The final IA would benefit from a clearer breakdown of where impacts fall across different types of smaller firms.

Cost-benefit analysis: Satisfactory

The IA quantifies familiarisation costs of £8 million and explains that the main welfare effects from different prescribed rates are transfers between leaseholders and freeholders. It draws on the LFRA IA’s £418 million estimate of efficiency savings from valuation reform and uses switching analysis to show that 1.9% of those savings would need to arise from prescribing rates for the net present social value to turn positive. The IA provides scenarios showing how different deferment and capitalisation rates would affect premiums.

Wider impacts: Satisfactory

The IA touches on supply, trade and investment, and impacts on valuers and public bodies. Given the consultation-stage uncertainty around the final rates, this is proportionate. It would be improved by developing the distribution of impacts across different freeholder types, professional service providers, and affected market segments, including how these interact with wider leasehold reform.

Monitoring and evaluation plan: Satisfactory

The IA sets out a 10 year statutory review, a programme-wide evaluation, and includes illustrative indicators such as rate-related disputes, valuation costs and user ability to estimate premiums without specialist input. It could be improved by giving clearer ownership, feasibility and timing for the bespoke data that do not yet exist.

Summary of proposal

The IA explains that the proposal will prescribe deferment and capitalisation rates for the Standard Valuation Method established by the Leasehold and Freehold Reform Act 2024. It describes the current position as one in which the deferment rate is effectively anchored by the Sportelli case, while capitalisation rates are negotiated in the market, creating complexity, asymmetry of information and avoidable professional costs.

The government is consulting on how to set both rates before making secondary legislation, and the eventual choice of rates will inform the final distribution of impacts between leaseholders and freeholders.

Rationale and options

The IA focuses on the rationale for prescribing rates and the options for setting them within the framework established by the 2024 Act. The IA explains that leasehold valuation is complex, that leaseholders often face information asymmetry and an inequality of negotiating power relative to freeholders, and that reliance on negotiation and litigation over rates can lead to avoidable valuer and legal costs.

It explains that prescription is necessary because the new Standard Valuation Method in the 2024 Act cannot commence unless the rates are set. The proposal does not replace the whole valuation process, but replaces case-specific determination of the deferment and capitalisation rates with prescribed rates.

The IA should explain more clearly how the final approach will balance simplicity and certainty, against the loss of case-specific valuation evidence.

The IA explains why a non-statutory route would not deliver certainty or allow commencement, and the consultation focuses on alternative approaches to setting the rates rather than a simple binary preferred option.

The IA could benefit from setting out more clearly the practical decision framework across the principal approaches, especially the trade-off between maximising simplicity through fewer prescribed rates and preserving closer alignment with current market variation.

The final IA should explain whether the approaches to setting deferment and capitalisation rates are methodologically aligned, or why different approaches are appropriate.

Identification of types and areas of impacts

The IA identifies familiarisation cost as the only direct business impact and estimates this at £8.1 million present value over the ten-year appraisal period, equivalent to £0.9 million per year. It explains that familiarisation costs fall across freeholders, legal professionals and valuers.

In each case, an assumed labour cost is applied to an assumed overall familiarisation time of 30 minutes. Although this is very short, in effect the policy simply prescribes 2 numbers which do not require interpretation or further work by the affected parties, so the low familiarisation cost seems reasonable.

At consultation stage, the key uncertainty is that the principal effects of prescribing rates depend on the rates that are eventually chosen: in principle, different rates would lead to different costs to business as opposed to households. The IA addresses this by separating direct familiarisation costs from transfer effects in enfranchisement premiums. This is a reasonable approach.

Small and micro business assessment

The IA indicates that micro and small organisations are in scope. It notes prescribed rates will reduce the volume of work required from valuers on enfranchisement claims, and may also affect in-house valuers working for local authorities and registered providers where they are freeholders.

The IA notes that any short-term increase in enfranchisement activity generated by wider reform could offset some of that effect. An exemption for small businesses is explained to be detrimental to the policy and would create complexity.

The IA would nevertheless be improved by drawing a sharper distinction between the position of small valuation firms, smaller freeholders and other professional services firms, and by clarifying whether any burdens fall disproportionately on these groups.

Cost-benefit analysis

The IA quantifies familiarisation costs at £8 million, reflecting the cost to relevant professional and stakeholder groups of understanding the prescribed rates. Its central welfare case is not that the chosen rates themselves generate net quantified benefits, because the main effect of different rate choices is a transfer between leaseholders and freeholders.

Instead, the IA points to reduced transaction costs from fewer valuation disputes, less negotiation over rate inputs and reduced need to challenge rates through the Tribunal system. It compares these potential savings with the earlier LFRA IA’s estimate of £418 million in efficiency savings from valuation reform, and states that only 1.9% of those savings would need to be attributable to prescribing rates for the net present social value (NPSV) to become positive. It states that about £22 of additional benefits per lease extension would be sufficient to offset the negative NPSV.

Wider impacts

The IA discusses several wider effects, including impacts on valuers, some public and private organisations, supply-side considerations, and potential implications for trade and investment. It states that it does not expect the prescription of rates to affect the supply of dwellings and does not anticipate implications for international trade.

It notes that rates could influence investment decisions in the residential property market, while emphasising that the government’s objective is to set rates that reasonably reflect the present value of rent and reversion.

The IA would be improved by developing the likely distribution of impacts across different categories of freeholder, valuation firms and legal service providers, and by explaining more clearly how the effect of prescribed rates can be distinguished from the wider reform package.

Monitoring and evaluation plan

The monitoring and evaluation section explains that the government is required to review the rates every ten years, though this can happen sooner if justified. It sets out a programme-wide approach to evaluation across leasehold and commonhold reforms and includes specific questions for the valuation-rates element, including whether the prescribed rates are applied consistently, whether they reduce time and cost in determining rates, and whether they reduce negotiation and disputes.

The IA goes further by listing illustrative indicators and data owners, including HMCTS and bespoke data collection. Several of the most useful indicators rely on data that do not yet exist, and the timing of implementation depends on further primary legislation. The IA should therefore be clearer on how the bespoke data will be collected, by whom, and on what timetable.