What is Reversionary Value?
Reversionary value is the present-day worth of the freeholder's right to reclaim full ownership of a property when the lease expires. When you extend your lease, you're effectively pushing back the date when the freeholder would have regained the property. The reversionary value compensates them for this delay.
Think of it this way: if your lease has 80 years remaining, the freeholder was expecting to get the property back in 80 years. When you extend, they now have to wait much longer. That lost expectation has a calculable value today, and you pay it as part of your lease extension premium.
Reversionary value is one of three components that make up your lease extension cost, alongside ground rent compensation and (if your lease is under 80 years) marriage value.
A Simple Example
Let's say you own a flat worth £200,000 with 80 years left on the lease.
The freeholder will eventually get this property back. But 80 years is a long time to wait. What's that future ownership worth to them today?
Here's where the calculation gets interesting. If you deposited £4,000 in a bank account today at 5% interest and left it untouched for 80 years, it would grow to approximately £200,000. This means £4,000 today is financially equivalent to £200,000 in 80 years.
So the reversionary value for this flat would be around £4,000.
That's the amount you'd pay to compensate the freeholder for having to wait even longer to reclaim the property.
Why It Matters to You
Reversionary value directly affects how much you pay to extend your lease. The key insight is this: the shorter your remaining lease, the higher the reversionary value becomes.
Why? Because the freeholder is closer to getting the property back. They're not waiting 80 years anymore. If your lease only has 60 years left, they were expecting ownership sooner. That makes their interest more valuable today.
Here's how reversionary value changes with lease length for a £200,000 property:
As you can see, the increase isn't linear. It accelerates as the lease gets shorter. This is why we often compare a lease to debt: the longer you leave it, the more expensive it becomes to deal with.
How Reversionary Value is Calculated
The Deferment Rate
The calculation uses something called a deferment rate, which is essentially the discount rate applied to work out what future value is worth today.
For residential flats in England and Wales, the standard deferment rate is 5%. For houses, it's 4.75%. These rates were established by an important legal case in 2007 and have been used consistently ever since.
Present Value Calculation
The formula takes the expected future value of the property (what it would be worth with a long lease when the current lease expires) and discounts it back to today using the deferment rate.
In technical terms:
Reversionary Value = Future Property Value x Present Value Multiplier
The present value multiplier depends on how many years remain on the lease and the deferment rate applied. Valuation tables provide these multipliers, or they can be calculated using standard financial formulas.
Key Variables
Three factors determine your reversionary value:
- Property value: The higher your property's value, the higher the reversionary value
- Years remaining on lease: Fewer years means higher reversionary value
- Deferment rate applied: A lower rate means higher reversionary value (and vice versa)
The Sportelli Case Explained
You'll often hear the "Sportelli" case mentioned in lease extension discussions. Here's what you need to know.
In 2007, the Upper Tribunal (Lands Chamber) decided the case of Cadogan v Sportelli. This ruling established that a 5% deferment rate should be used for valuing reversionary interests in Prime Central London residential flats.
The rate was calculated by taking:
- A 2.25% risk-free return (based on index-linked gilts)
- Plus a 4.5% risk premium (recognising property investment risk)
- Minus 2% for expected long-term property value growth
This gave the 4.75% rate for houses and, after further adjustment for flats, 5% for flats.
Before Sportelli, deferment rates varied widely, often sitting at 7-8% outside London. The standardisation at 5% actually increased lease extension costs for many leaseholders, because a lower deferment rate means a higher present value.
The practical takeaway? The 5% rate is now standard across England and Wales for flat lease extensions, regardless of location.
When Landlords Try to Use a Different Rate
Despite the Sportelli ruling, some freeholders and their surveyors will argue for a lower deferment rate in their counter-valuation. Why would they do this? Because a lower deferment rate means a higher reversionary value, which means you pay more.
The arguments they typically make include:
- Location-specific factors: Claiming that properties in certain areas justify a different rate due to unique market conditions
- Intermediate Landlord: Where there is a professional intermediate landlord who manages the building their risk-premium should be lower
- Market conditions: Suggesting that changes in interest rates or property growth since 2007 mean Sportelli is outdated
Here's what you need to know: these arguments rarely succeed at Tribunal. The Upper Tribunal has consistently upheld the 5% rate for flats in the vast majority of cases. The Court of Appeal in Sportelli specifically left the door open for different rates in different locations, but in practice, tribunals have been reluctant to depart from the established rate without compelling evidence.
If a freeholder's surveyor uses a rate below 5% in their valuation, this is typically a negotiating tactic. A strong response from your surveyor, backed by the weight of Tribunal decisions supporting 5%, usually resolves this. If negotiations fail and the case goes to the First-tier Tribunal, the 5% rate is almost always applied.
This is one reason why having an experienced RICS surveyor on your side matters. They'll recognise these tactics and know how to respond effectively.
Reversionary Value vs Marriage Value
These two concepts are often confused, but they're distinct.
Reversionary value applies to every lease extension, regardless of lease length. It compensates the freeholder for the delayed return of the property.
Marriage value only applies when your lease has less than 80 years remaining. It represents the "profit" created by extending the lease, which you must share with the freeholder (currently 50/50).
If your lease has more than 80 years left, you'll pay reversionary value but no marriage value. If your lease has dropped below 80 years, you'll pay both, which is why the 80-year threshold is so significant.
For a deeper explanation, see our guide to marriage value.
How Lease Length Affects Your Costs
Your lease acts like a sand timer. As time passes, value gradually moves from you (the leaseholder) to the landlord. This transfer accelerates as the lease gets shorter.
The reversionary value calculation reflects this. Each year you wait:
- Your lease gets one year shorter
- The freeholder's wait to reclaim the property reduces by one year
- The present value of their interest increases
This is why extending sooner rather than later typically saves money. The reversionary value you pay today will be higher if you wait until next year, and higher still the year after that.
Future Changes Under Leasehold Reform
The Leasehold and Freehold Reform Act 2024 gives the government power to prescribe deferment rates through secondary legislation. This means the 5% Sportelli rate could change in the future.
However, there's significant uncertainty about what the new rates will be. Some commentators have suggested rates as low as 3.5%, which would increase reversionary values significnatly (and therefore lease extension costs for leases over 80 years). Others expect rates closer to the current 5%.
The government has indicated it will consult on these rates, but no firm timeline has been announced. Until new rates are prescribed, the current Sportelli rates continue to apply.
Should you wait for reform? It's impossible to say whether changes will help or hurt your specific situation. What we can say is that every year you wait, your lease gets shorter, which increases reversionary value regardless of which deferment rate is applied.
In Summary
Reversionary value is the price you pay to compensate your freeholder for having to wait longer to reclaim the property. It's calculated using a deferment rate (typically 5%) to work out what the future property value is worth today.
The key points to remember:
- Reversionary value applies to all lease extensions, not just those under 80 years
- Shorter leases mean higher reversionary values
- The 5% deferment rate comes from the 2007 Sportelli case
- Future reform may change prescribed rates, but timing is uncertain
- Waiting costs more because your lease gets shorter every year
