Addendum to Leasehold and Freehold Reform Act 2024 Impact Assessment (April 2025)

Addendum to Leasehold and Freehold Reform Act 2024 Impact Assessment

1. This addendum sets out technical corrections to certain formulas used in the
modelling for the reform that caps ground rents at 0.1% of the freehold vacant
possession value in enfranchisement calculations. As the intention is to amend the
figures as they were presented in the Impact Assessment (IA)1 at the time it was
published in December 2023 , we have not made any updates to data or inputs that
may have changed between then and now. As this is a technical correction based on
our evidence, data and understanding at the time of modelling , the same modelling
caveats set out in the Impact Assessment continue to apply.

2. The technical correction relates to the uprating and discounting of the ground rent
term.2 An amendment has also been made to the interaction applied to the 0.1%
ground rent estimate, to ensure the interaction is accounted for as intended. 3 Taken
together these amendments have had the net impact of increasing the estimated
impacts of the 0.1% cap. As ground rents feed into marriage value calculations, the
marriage value reform impact has also changed.

Impacts on total costs and benefits

3. The figures below are set out in 2019 prices and 2025 Present Value (PV) in line with
the body of the Impact Assessment. The Regulatory Policy Committee (RPC) template
at the top of the Impact Assessment (pages 1-6) require figures to be presented in
2020 Present Value (PV) – therefore, figures presented in 2020 PV are set out in
relevant footnotes and tables.

4. The impact represents a transfer, i.e. a cost to landlords/ freeholders but an equal
benefit to leaseholders. Over the 10-year appraisal period, these corrections lead to:

a) Total costs increasing fr om £3.5bn to £4.0bn, an increase of £0.5bn (2019
prices, 2025 PV).
b) Total benefits also increasing from £3.6bn to £ 4.1bn, an increase of £0.5bn
(2019 prices, 2025 PV).

1 Leasehold and Freehold Reform Bill Impact Assessment.
2 This includes the removal of an inflation deflator which was not required as part of calculating the ground rent term which had
the effect of discounting the future rents too heavily. Amendments were also made to inflation formulas used in calculating the
term, to ensure the appropriate growth of ground rent over time, including using the long run Retail Price Index (RPI)
assumption of 2% to match Office for Budget Responsibility (OBR) long run economic determinants available at the time of the
IA as set out here: Supplementary forecast information release: Long-term economic determinants – March 2023 - Office for
Budget Responsibility.
3 See page 118 and page 64 of the IA for more detail.

c) The net change to society is therefore zero as these are transfers, meaning that
the Net Present Value is unchanged at £107m (2019 prices, 2025 PV).4

5. This increase in costs falls within the ranges of uncertainty for the IA as a whole as set
out in the original IA.5

Impacts on individual reform estimates

6. Following this correction, the estimate of the 0.1% ground rent cap impact increases
from £588m over the 10 -year appraisal period to £1,151m , an increase of £563m
(2019 prices, 2025 PV ). This includes the interaction impact with marriage valu e
which increased from £62m to £100m over the 10-year appraisal period.

7. Marriage value reform impacts are reduced from £1,910m to £1,860m over the 10 -
year appraisal period, a decrease of £49m (2019 prices, 2025 PV).

8. The net change is an increased estimate d cost to freeholders of £513m, and an
increased estimated benefit of £513m to leaseholders over the appraisal period.6

£m, 2019 prices, 2025 PV
Previously
published figures Corrected figures Difference
0.1% cap on ground rents 588 1,151 563
Marriage value 1,910 1,860 -49
Total 513

9. The asset value impacts resulting from m arriage value reforms decreased from
£7.1bn to £6.9bn for England.

10. Average estimates per short lease reduced from £18,500 per short lease in England
(£18,000 in England and Wales) to £18,000. The estimated gain relative to property
value reduced from approximately 7% - 8% to 6% - 7%.

Impacts on business

4 The Net Present Value is £90.9m in 2019 prices, 2020 PV.
5 In order to comply with RPC requirements, the template at the top of the IA on pages 1-6 present figures in 2020 PV. In this
form the original IA showed that the total costs were 3.0bn and gave a high scenario for total costs of 3.9bn, a range of £900m
(2019 prices, 2020 PV). The corrected central estimate for total costs is £3.4bn in 2020 PV, an increase of c400m of the central
estimate (2019 prices, 2020 PV). Although not all costs in the IA are in relation to freeholders, the majority are.
6 Figures may not sum due to rounding.

11. These technical changes have increased our estimates of net direct costs to business
per year:
a. The Equivalent Annual Net Direct Cost to Business (EANDCB), for the enacting
legislation, increased from £159m to £191m (2019 prices, 2025 PV).
b. When including the expected costs of the secondary legislation, the EANDCB
increased from £227m to £259m (2019 prices, 2025 PV).7

Impacts further broken down by region or affected group

12. The total reform package has total benefits of £4.1bn over the 10 -year appraisal
period, most of which are received by leaseholders (although not all). Dividing this by
the total number of leasehold properties leads to an estimated benefit of £83 per year
per leasehold property.

13. Most of the £4.0bn costs are felt by freeholders (although not all). The average annual
cost divided by the estimated number of freeholders is estimated to be £948 (2025
PV).
14. The 0.1% cap estimated impact of £1,151m over the 10-year appraisal period can be
broken down into £426m for business leaseholders and £ 725m for non -business
leaseholders.8

15. The marriage value estimated impacts of £1,860m across the 10 -year appraisal
period can be broken down into £688m for business leaseholders and £1,172m for
non-business leaseholders.

16. The subgroup of 11,900 leaseholders that benefit from marriage value reforms each
year will receive discounted transfers of £15,700 per affected lease. There is
significant regional variation, for example the average reduction in London is
estimated to be £26,400 compared to the North East which has an average reduction
of £4,800. Spread over the 10 -year appraisal period th e £15,700 figure equates to
£1,600 per affected leasehold property per year.

17. Most of the impacts in the summary impact Table 3.2 arise from the valuation reforms
(90%), in particular marriage value reforms (46%). In terms of regional distribution ,
66% of marriage value transfers occur in London, largely due to there being a higher
proportion of flats in London and also reflecting the relatively higher property prices.

7 In order to comply with RPC requirements, the template at the top of the IA on pages 1-6 presents figures in 2020 PV. In this
form, the EANDCB including the expected costs of secondary legislation increased from £222.8m to £254.6m (2019 prices,
2020 PV).
8 Splits are based on 37% of leasehold properties in the private rented sector. This assumption is discussed further in the IA.

18. The primary EANDCB of £191m (2019 prices, 2025 PV) is equivalent to direct net costs
of £448 per freeholder and £38 per leasehold dwelling in England.

19. The Annex sets out corrected tables from the I mpact Assessment. The tables show
just the affected reforms and consequential updates to calculated totals or averages.

20. Further detail on enfranchisement measures – some of which are in the scope of the
technical correction described here – will be subject to secondary legislation as set
out in the Written Ministerial Statement. 9 T he Department will consult on the
valuation rates used to calculate the cost of enfranchisement premiums. Parliament
will then need to approve the secondary legislation that sets out the detail, before
implementing the package. This will be supplemented with further analysis at the
appropriate time.

9 Leasehold and Commonhold Reform, 21 November 2024.

AnnexAmended Tables
Page 1-6 – Summary tables at front of the Impact Assessment.
Note: this is set out in 2019 prices, 2020 PV in line with RPC requirements, but elsewhere
tables are set out in 2025 PV.
Cost of Preferred (or more likely) Option (in 2019 prices, 2020 present value, £m)
Total Net Present
Social Value
Business Net
Present Value
Net cost to
business per year
Business Impact Target
Status
90.9 -1,975.5 254.6 1,272.9

Price
Base

PV
Base

Time
Period

Net Benefit (Present Value (PV)) (£m)
2019 2020 10 years Low: -1,515.9 High: 1,532.4 Best Estimate: 90.9

COSTS (£m) Total Transition
(Constant Price) Years
Average Annual
(excl. Transition)

Total Cost
(2020 Present Value)
Low 33.6 309.5 2,691.2
High 53.9 498.5 4,319.6
Best Estimate 43.7 393.4 3,419.1

BENEFITS (£m) Total Transition
(Constant Price) Years

Average Annual
(excl. Transition)
(Constant Price)
Total Benefit
(2020 Present Value)
Low 0.0 325.7 2,803.7
High 0.0 490.8 4,223.6
Best Estimate 0.0 407.8 3,510.0
BUSINESS ASSESSMENT (Option 3)
Direct impact on business (Equivalent
Annual) £m:
Score for Business Impact Target
(qualifying provisions only) £m:
Costs: 391.2 Benefits: 136.6 Net: 254.6 1,272.9

Tables from Chapter 3 – Headline reform impacts

Table 3.1 and 3.2
Note: 2019 prices, 2025 PV over a 10-year appraisal period.
£m Total costs
(2025 PV)
Total benefit
(2025 PV)
Net Present
Value
EANDCB
(Primary and
Secondary
Legislation)
4,040.4 4,147.7 107.3 259.3
Measures under Annex 2 – reforms to the valuation process to make it cheaper and
easier to enfranchise, and mandate the valuation methodology for most lease
extensions and freehold acquisitions
• Removal of
Marriage value 1,860.4 1,860.4 0.0 117.2
• Cap ground
rents at 0.1% of
freehold value 1,151.0 1,151.0 0.0 72.5

Table 3.2 extended
Note: 2019 prices, 2025 PV over a 10-year appraisal period.
Impact Value (£m) Group impacted Direct/
Indirect
Transfers
By removing marriage value
payment
£688 Freeholders to
Leaseholders (Businesses) Direct
£1,172
Freeholders to
Leaseholders (Non-
Businesses)
Direct
By capping ground rents within
the valuation process
£426
Freeholders to
Leaseholders (Businesses) Direct
£725
Freeholders to
Leaseholders (Non-
Businesses)
Direct
Costs
Total Benefits £4,048
Direct Benefits £3,630
Direct Benefits to Business £1,356
Total Cost £3,630
Direct Cost £3,630
Direct Cost to Business £3,618
Total Net Benefits £418
Direct Net Benefits £0

Direct Net Benefits to Business -£2,262
EANDCB £226

Table 3.3: Summary of the EANDCB
2019 prices, 2025 PV (£m) EANDCB,
Central
EANDCB without PRS
leaseholder assumption
Estimated annual net direct cost to business
(EANDCB) – primary legislation only
191 306
Estimated annual net direct cost to business
(EANDCB) – primary and secondary legislation
259 400

Tables from Annex 2
Relevant sections from tables on page 112 and 113 of the Impact Assessment.10
(2019 prices,
2025 PV)
Average
Marriage
Value (£)
Annual Discounted
Marriage Value impact
(£m)
Distribution of
Marriage Value
Impacts
Total 15,661 186 100%
North East 4,819 2 1%
North West 6,996 5 2%
Yorkshire and
The Humber
6,268 3 1%
East Midlands 6,406 2 1%
West Midlands 6,972 8 4%
East of England 10,265 13 7%
London 26,378 122 66%
South East 11,095 25 13%
South West 8,918 7 4%

Sensitivities
Relevant tables from page 137 of the Impact Assessment.
a) Number of lease extensions per year
2019 prices, 2025 PV 31,000 Lease
Extensions
38,900 Lease
Extensions (central
assumption)
54,000 Lease
Extensions
Marriage Value (£m) 1,554 1,860 2,429

b) Distribution of leases at the point of enfranchisement

10 Figures may not sum due to rounding.

2019 prices, 2025 PV No
Restriction
110 Years (central
assumption)
Marriage Value (£m) 737 1,860

c) Average ground rents
2019 prices, 2025 PV Central – different ground
rents applied to leases
based on assumptions of
fixed vs. variable leases
Scenario – average
EHS ground rent
for all leases
Ground Rent Cap (£m) 1,151 942