Short-lease flats trade at deep discount because they're hard to mortgage. Extending the lease under the 1993 Act often costs far less than the discount, so the spread is the arbitrage. We score every candidate against statutory premium estimates, long-lease comparables, marriage-value capture and the GOLD sweet spot (60-80 years remaining).
Leasehold flats are sold with a fixed number of years remaining on the lease. Once the lease drops below 80 years, the freeholder is entitled to marriage value when the leaseholder extends - 50% of the value gap between the short-lease price and the long-lease (extended) price. Below 80 years, the buyer pool shrinks rapidly because most mortgage lenders won't touch sub-80 leases, so the discount widens. Under the Leasehold Reform, Housing and Urban Development Act 1993, any leaseholder who has owned for at least 2 years can serve a Section 42 notice compelling the freeholder to grant a 90-year extension at peppercorn ground rent. The cost is the statutory premium (basic buyout + marriage value share) plus legal and valuation fees. When the premium plus the short-lease price is materially less than what the same flat with a fresh 150-year lease would sell for, you have an arbitrage.
60-80 yr is the GOLD sweet spot: marriage value kicks in (discount widens) but premium stays manageable. 80-100 yr = light arbitrage. 40-60 yr = deep discount but premium grows. <25 yr = excluded (better to buy freehold).
Pure-python deterministic model: basic buyout (1.5-10% of asking, band-dependent) + 50% of marriage value (the post-extension uplift gap) + GBP 2,500 legal + GBP 750 valuation. High ground rent (>GBP 250 pa) adds a capitalisation caveat.
Projected post-extension value anchored to nearby long-lease (>=125 yr) or freehold flat comparables in the same postcode area, scaled by floor area. Falls back to a conservative asking-price multiplier when comparables are sparse.
Long-lease ARV - (asking + premium + fees). GOLD requires >=20% over asking, SILVER 10-20%, BRONZE 5-10%. Negative uplifts are excluded - the premium has eaten the discount.
GOLD requires lease_years_remaining between 60 and 80 (marriage value kicks in but premium stays manageable), a long-lease ARV at least 20% above the total acquisition cost (asking + premium + fees), and a viable property type (Flat / Apartment / Maisonette). Houses use the 1967 Act (collective enfranchisement) and are out of scope.
Three-component model: (1) basic buyout = 1.5% / 5% / 10% / 40% of asking depending on years-remaining band, (2) marriage value = 50% of (long-lease ARV - asking - basic buyout) when years < 80, (3) legal GBP 2,500 + valuation GBP 750. Capped at 40% of asking to prevent runaway numbers on very short leases.
Below 25 years the premium grows so large it typically exceeds the long-lease discount, so there is no arbitrage to capture. At that point the better strategy is either buying the freehold via collective enfranchisement or walking away.
Leasehold houses extend under the Leasehold Reform Act 1967 (which gives a 50-year extension at a modern ground rent OR collective enfranchisement to acquire the freehold), not the 1993 Act used for flats (90-year extension at peppercorn rent). The economics, premium formulae and process are materially different.
Save your short-lease buying box and get alerts when leasehold flats with 60-80 years remaining hit the market - pre-filtered against statutory premium estimates, long-lease comparables and marriage-value capture economics.
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