News
Government Abolishes Two-Year Rule in Further Stage of Leasehold Reforms
Comment from the Association of Leasehold Enfranchisement Practitioners (ALEP)
The abolition of the ‘two-year rule’ with effect from 31st January 2025 – makes it easier to claim an extended lease or purchase the freehold to a leasehold house
The Government has taken the first steps towards implementing the Leasehold and Freehold Reform Act 2024 with the abolition of the contentious two-year rule. The change is in force as of 31 January 2025 and is intended to make it easier and faster for leaseholders to extend their lease, or to buy the freehold to their leasehold house, from the first day of ownership.
As a result, leaseholders will no longer have to wait two years after the point of purchasing their property before exercising their right to extend their lease or buy their freehold.
As I predicted earlier in the year, this change is a ‘quick win’ for government and is one of the easiest provisions of the Leasehold and Freehold Reform Act 2024 (‘LAFRA’) to have enacted.
There are several other provisions that have NOT yet been ‘switched on’ – notably the 990 years lease extension and the valuation changes.
Progress towards the valuation changes is likely to be slow, particularly given that yesterday the High Court gave permission for the six claimants in the Human Rights Act challenges to the legislation permission to bring their cases for judicial review of the legislation. The substantive hearing of this case is likely to take place towards the end of July 2025, around the same time that the Government plans to start consulting on the applicable ‘rates’ to be used in the revised leasehold reform valuation mechanism that LAFRA seeks to bring in.
I expect this to cause further delay to the implementation of the valuation reforms.
The Two-Year Rule
Removing the two-year rule does make it easier for leaseholders to bring a claim to extend their lease under the 1993 Act, or for those owning a qualifying leasehold house to bring a claim to buy the freehold under the 1967 Act.
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 in the Commonhold and Leasehold Reform Act 2002 there has been no ‘two year’ ownership requirement.
There are some technical points to be observed as well. The qualifying tenant must be the owner of the property to bring the claim and the registered owner at that. That means that during the so called ‘registration gap’ after a purchase that the person owning the title (even if they have sold) may need to give the claim notice and the benefit of this will need to be assigned. That issue will fall away assuming that registration goes through quickly but as we know from current experience the Land Registry can be subject to lengthy delays.
The Bigger Picture
In terms of the broader picture of leasehold reform, this is a step in the right direction, but leaseholders have been waiting a considerable amount of time for further changes to be forthcoming. Although the Leasehold and Freehold Reform Act 2024 received royal assent on 24 May 2024, much of the secondary legislation within the Act remains to be implemented and many of the much-needed reforms contained in the Act remain some way off.
There is also the promise of a new piece of legislation – a draft Commonhold and Leasehold Reform Bill. There is no sight of this yet but this is likely to be a large piece of legislation and one that will not hit the statute books or come into force quickly. We await a draft Bill later this year, along with the promised White Paper on Commonhold.
The year 2025 promises to be a busy year for leasehold reform, with a number of consultations promised.
However, for those purchasing a leasehold property, the abolition of the two-year rule at least provides them with the flexibility and choice to about when to seek a lease extension, provided that the lease is acceptable for lending purposes (otherwise they will still need to seek to put an extension in place before completing).
In the meantime, for those with a short lease the time to act may well be now, although, as ever specific facts and circumstances will determine what the right course of action will be.
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