Schedule 4 - Determining and sharing the market value Part 5: The Standard Valuation Method
Paragraph 24 introduces the standard valuation method set out in Part 5. The standard valuation method consists of steps 1 to 3, and there are two alternative versions of step 2 (depending on whether the claim being made is a freehold acquisition or lease extension claim).
	Paragraph 25 sets out step 1: the determination of the "term value". The term value is the capital value of the landlord’s right to receive ground rent for the remainder of the lease. The term value must be calculated in accordance with the provisions in Part 7 of Schedule 2. The rent that is to be used when calculating the term value is set out in paragraph 26. Paragraph 25 makes clear that where the ground rent in the lease is nil or a peppercorn, the term value is nil.
	Paragraph 25 also makes provision for calculating the term value in respect of collective enfranchisements, as well as for where a leaseholder has two (or more) leases over the property that is subject to the enfranchisement claim (which are a "deemed single lease" under Section 3(6) of the LRA 1967 or Section 7(6) of the LRHUDA 1993): the term value must be calculated for each constituent lease.
	Paragraph 26 sets out the rent which must be used when calculating the term value under paragraph 25, and a ground rent cap which applies in certain circumstances. For any periods where the actual rent in the lease is higher than the "notional rent", the term value must be calculated using the notional rent (rather than that actual rent). The notional rent is an annual rent of 0.1% of the open market value of the freehold (for LRA 1967 claims) or of the share of the freehold (for LRHUDA 1993 claims) of the relevant premises.
	Despite the ground rent cap, the actual rent must be used to calculate the term value in two exceptional circumstances: where the tenant did not pay a premium for their lease; and where the seller can show that the lease was specifically negotiated to be at a high ground rent, in order to compensate for a corresponding reduction to the premium.
	If the lease being valued is a shared ownership lease, paragraph 26 sets out that the rent that is to be used for the calculation of the term value under paragraph 25 is the rent payable on the tenant’s share.
	Paragraph 26(2) also limits the rent that is relevant to calculating the term value to rent which is payable only in respect of property that is subject to the standard valuation method. For example:
A leaseholder has a single lease of a house and a neighbouring field. Under the lease, the leaseholder pays £60 ground rent per year. £50 is ground rent for the house, and £10 is ground rent for the field.
The leaseholder extends the lease of the house, but not of the neighbouring field. The property that is subject to the standard valuation method consists only of the house. As a result, the ground rent taken into account in calculating the term value is £50 per year.
	Paragraphs 27 and 28 set out the two versions of Step 2, for freehold acquisitions and lease extensions respectively.
	Paragraph 27 sets out step 2 for freehold acquisition claims (of houses or blocks of flats): the determination of the "reversion value". The reversion value is the market value of the premises subject to the standard valuation method, deferred until the expiry of the leaseholder’s lease. Paragraph 27(2) requires the reversion value to be calculated by establishing the market value of the freehold (for LRA 1967 claims) or the share of the freehold (for LRHUDA 1993 claims) and reducing it through the reversion value formula (in which the applicable deferment rate must be used). There will be a separate reversion value for each qualifying tenant’s lease in a collective enfranchisement.
	Like paragraph 25, paragraph 27 provides that where the leaseholder has two (or more) leases that constitute a deemed single lease, there will be a separate reversion value for each of those leases.
	Paragraph 28 sets out step 2 for lease extension claims (of houses or flats): the determination of the "reversion value". The reversion value is the market value of a 990-year lease granted at a peppercorn ground rent and on the same terms as the extended lease, deferred until the end of the term of the qualifying tenant’s lease. Where the lease being valued is a shared ownership lease, the amount determined under step 2 must be reduced in proportion to the share of the property owned by the tenant. Paragraph 28 also makes provision for deemed single leases.
	Paragraph 29 sets out step 3 for all calculations being carried out following the standard valuation method. Under Step 3, the term value and the reversion value must be added together. In the case of a collective enfranchisement, all the term values and all the reversion values must be added together. Paragraph 29(4) provides that the step 3 amount (adjusted, if necessary, in accordance with paragraph 20 and 22) is the market value to be paid for the part (or parts) of the property that are valued using the standard valuation method. Paragraph 29(5) provides that further sums may be payable in respect of the other parts of the premises (which are not subject to the standard valuation basis).