The abolition of the two-year ownership requirement for lease extensions and purchases marks a significant shift in leasehold property law, offering immediate benefits to millions of homeowners in England. Previously, leaseholders had to wait two years after purchasing their property before they could extend their lease or buy the freehold, creating potential complications and delays in the property market. This antiquated rule, now discarded, often hindered property transactions and placed leaseholders in a precarious position, especially as lease values diminish over time. The removal of this barrier streamlines the process, empowering homeowners to take control of their property rights from the outset. This change also simplifies the sales process, eliminating the need for complex legal arrangements to incorporate lease extensions into property transactions.
Leasehold properties, primarily flats but also including some houses, represent a significant portion of the English housing market, with approximately 4.77 million such properties. Unlike freehold ownership, where the owner possesses both the property and the land it stands on, leaseholders own the property but lease the land from the freeholder. This arrangement often involves ongoing costs like ground rent and service charges, which have been a source of contention due to unpredictable and often sharp increases. Buying the freehold, now possible from day one of ownership, allows leaseholders to gain full control over these costs, providing greater financial stability and predictability.
The two-year rule removal is part of a larger legislative overhaul aimed at modernizing leasehold laws and providing greater protection for leaseholders. The Leasehold and Freehold Reform Act (LFRA), introduced in May 2024, spearheaded this reform. This change has been lauded by legal experts as a long-overdue modernization, simplifying transactions and offering homeowners more immediate control over their property. It eliminates the previous ambiguity and potential delays associated with lease extensions during property sales. This move promises a more efficient and transparent property market for leasehold properties.
Further reforms under the LFRA are on the horizon, promising even more substantial changes to the leasehold system. These include extending the maximum lease extension period to 990 years, a significant increase from the current 90 years for flats and 50 years for houses. This extended timeframe offers greater long-term security for leaseholders, reducing anxieties about diminishing lease values and the associated costs of extensions. The Act also proposes abolishing the “marriage value” calculation, a complex component currently used to determine the cost of extending leases with less than 80 years remaining. This simplification of the valuation process is expected to make lease extensions more affordable and accessible.
While the removal of the two-year rule and the right-to-manage provisions have already come into effect, the implementation of the extended lease terms and the abolition of marriage value await further parliamentary legislation. These additional reforms, expected in the near future, will complete this phase of leasehold reform, providing leaseholders with more comprehensive rights and greater financial predictability. The government has also indicated plans for future consultations regarding service charges, legal costs associated with leasehold transactions, and the costs of purchasing freeholds.
Beyond the LFRA, the government has expressed its intention to eventually transition away from the traditional leasehold system towards a commonhold model. In a commonhold arrangement, residents collectively own and manage the land associated with their properties, fostering a more equitable and democratic approach to property ownership. While the full realization of commonhold remains a long-term objective, the current reforms under the LFRA represent significant steps towards a fairer and more transparent leasehold system, empowering homeowners and simplifying property transactions. These reforms promise a more balanced and modern approach to property ownership for millions of leaseholders in England.
