City Research Online

Leasehold extensions: The Relativity conundrum and the time value of housing

Andrew, M. ORCID: 0000-0002-5256-4882, Culley, J. & Sleptcovac, M. (2024). Leasehold extensions: The Relativity conundrum and the time value of housing. .


We address a conundrum in short leasehold apartment valuations. Leaseholders have a statutory right to extend their leases by paying a premium. The unenfranchised Relativity, the leasehold value without extension rights relative to its long leasehold value, is an important component. Unenfranchised leasehold values are unobserved. Our insight is that transacted prices contain an embedded option value which can be used to obtain the unenfranchised Relativity by applying hedonic and option pricing models. Our unenfranchised Relativities appear plausible, match Tribunal decisions, suggest premium payments were not grossly unfair and highlight implications for deriving household’s net discount rates from lease lengths.

Publication Type: Monograph (Working Paper)
Publisher Keywords: leasehold valuation, Relativity curves, option value
Subjects: H Social Sciences > HG Finance
Departments: Bayes Business School
Bayes Business School > Finance
SWORD Depositor:
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