"We will have to wait to see how (if at all) lenders respond to this change. It is however now possible for a purchaser to buy a property and consider the extension of the lease at a time of their choosing after the purchase without automatically ‘losing out’ as the lease will be two years shorter if they choose to wait"
- Mark Chick - ALEP
In implementing the Leasehold and Freehold Reform Act 2024 (LAFRA), the Government has abolished the contentious two-year rule.
This change, which takes effect from the end of this month, will make it easier and faster for leaseholders to extend their lease or buy their freehold unconstrained by the duration of their ownership.
Until now the two-year rule (as set out in the Leasehold Reform, Housing and Urban Development Act 1993) required that to initiate an enfranchisement or lease extension, the leaseholder must have been the registered owner (as per the Land Registry records) of the leasehold interest for at least two years - in the same way a leasehold house owner has to have owned the lease of their house for two years prior to bringing a claim to buy the freehold under the Leasehold Reform Act 1967.
The requirement to have owned two years was a legacy requirement from the time prior to the 1993 Act reforms when in order to claim enfranchisement rights a leaseholder had to have lived in the property as their principal residence for periods amounting to three years in the last 10. These were swept away along with the residence test by the Commonhold and Leasehold Reform Act 2002.
The two-year rule has always sat awkwardly with the position in relation to the 1993 Act for collective enfranchisement for blocks of flats where since the previous reforms there has been no ‘two-year’ ownership requirement.
ALEP has long campaigned for the removal of the two-year rule as an unnecessary barrier to claiming enfranchisement rights and this simplification is to be welcomed.
“ALEP welcomes the news that leaseholders are able to extend their lease or enfranchise their qualifying leasehold house at a time of their choosing. This reform will make it easier for a wider class of people to access enfranchisement rights," said Mark Chick, director of ALEP and a Partner at Bishop & Sewell LLP.
However, he added, "If a lease needs to be extended because of mortgage conditions – for example, if it is under 80 years or of a length that is not acceptable to the mortgage lender because it is shorter - then the issue of needing a longer lease at completion of the sale remains.
“We will have to wait to see how (if at all) lenders respond to this change. It is however now possible for a purchaser to buy a property and consider the extension of the lease at a time of their choosing after the purchase without automatically ‘losing out’ as the lease will be two years shorter if they choose to wait.”
The Leasehold and Freehold Reform Act 2024 received royal assent on 24 May 2024, having been fast-tracked in the wash-up period before the 2024 general election. Much of the secondary legislation within the Act remains to be implemented.
“In terms of the broader picture of leasehold reform, this is a step in the right direction. But it is one of the few changes that the current government has made to leasehold reform since being elected six months ago," Mark added, "Many of the much-needed reforms, including those legislated for in the previous government’s 2024 Act, remain some way off.
"Even in the case of the two-year rule, for example, today’s positive step will have to be tempered by the fact that the valuation reforms have yet to change. So, while the timeframe has changed, the cost to the leaseholder is dependent on further reforms, which on any analysis will not occur for a further two years plus.”
