What is Freehold Vacant Possession Value?
Freehold Vacant Possession Value (often abbreviated to FHVP) is the estimated value of your property if it were owned outright as a freehold, with no leasehold interests attached. Think of it as asking: "What would my flat be worth if I owned it completely, forever, with no ground rent, no landlord and no lease expiry date?"
This hypothetical value matters because it forms the foundation of lease extension calculations. When a surveyor values your lease extension premium, they need to work out what the landlord is giving up by extending your lease. The FHVP is the starting point for that calculation.
For most leaseholders, the FHVP will be higher than what you originally paid for your flat or what it would sell for today. That's because a leasehold property is always worth less than an equivalent freehold, since you're buying the right to live there for a limited time rather than owning it outright.
A Simple Example
Let's say you own a flat in South London that's currently worth £300,000 on the open market with its 85-year lease. A surveyor assessing your lease extension would first estimate the FHVP.
Looking at comparable freehold sales in your area and adjusting for differences in condition and location, the surveyor might conclude that if your flat were held as a freehold, it would be worth £325,000. This £325,000 is the freehold vacant possession value.
From this FHVP figure, the surveyor can then work backwards using something called "relativity" to understand how your existing lease compares. If your 75-year lease represents 97% of freehold value (the relativity), then the calculation checks out: £325,000 x 92.5% = approximately £300,000, matching the market value.
This FHVP figure then feeds directly into calculating what you'll pay to extend your lease.
How FHVP Affects Your Lease Extension Premium
The freehold vacant possession value influences your lease extension premium in three key ways:
1. Calculating the Reversion
The "reversion" is the landlord's right to get your property back when the lease expires. Even though that might be decades away, it has a present-day value. To calculate this, surveyors take the FHVP and discount it back to today using a deferment rate (typically 5% following the Sportelli case). The shorter your lease, the more valuable this reversion becomes because the landlord is closer to getting the property back.
2. Marriage Value Calculations
If your lease has dropped below 80 years, you'll need to pay marriage value as part of your premium. This represents the increase in value created by combining your leasehold interest with the landlord's freehold interest. The FHVP is essential for this calculation because it represents the "merged" value once the interests are combined.
FHVP vs Market Value: What's the Difference?
This is where many leaseholders get confused. Your property has two different values:
Market Value is what your flat would actually sell for today, on the open market, with its current lease length. This is the real-world price a buyer would pay.
Freehold Vacant Possession Value is the theoretical price if that same flat were owned as a freehold with no lease attached. It's always higher than the leasehold market value this is because a leasehold is not sold as a freehold, but you also need to account for the "no-Act world". This effectively means that any leasehold property that is sold after 1993 had the right to a lease extension, which effectively needs to be added onto the price of any recent sale that has occured.
The relationship between these two values is called "relativity". A flat with a 90-year lease might have a relativity of 93%, meaning it's worth 93% of its FHVP. A flat with only 50 years left might have a relativity of 73%, meaning the leasehold is worth significantly less than the freehold equivalent.
Understanding this distinction helps you make sense of valuation reports. If your surveyor states an FHVP of £400,000 but your flat is on the market for £350,000, that's not a mistake. The difference reflects the "cost" of having a lease rather than owning outright.
How Surveyors Calculate FHVP
Establishing the FHVP is more art than exact science. Surveyors typically:
- Select comparable sales of similar properties in the nearby area
- Make adjustments for differences in the size of the properties
- Account for the date of transactions by calculating house price growth
- Consider the length of the lease and work backwards using relativity percentage
- Include the "no-Act world" assumption to make the final adjustment.
Because FHVP involves interpretation, your surveyor and your landlord's surveyor may arrive at different figures. A £10,000 difference in FHVP estimates can translate into thousandsof pounds difference in your final premium. This is why having a robust, defensible valuation from a RICS-qualified surveyor matters.
If valuations can't be agreed, the case may proceed to the First-tier Tribunal (Property Chamber), where a tribunal will determine the appropriate FHVP based on evidence from both sides.
In Summary
Freehold vacant possession value is the theoretical worth of your property if you owned it outright as a freehold. It serves as the foundation for lease extension calculations, affecting the reversion value, marriage value and ground rent components of your premium.
