"two-year" ownership rule no longer applies

On 31st January 2025, the Leasehold and Freehold Reform Act 2024 (Commencement No. 2 and Transitional Provision) Regulations 2025 have enacted Section 27 of the Act, removing the two-year qualifying period that leaseholders previously needed to meet before extending their lease or purchasing their freehold.

This means that those who either have a leasehold flat seeking to extend their lease, as well as those who have leasehold houses who are either seeking to extend theirs or purchase the freehold, no longer need to have owned their lease for two years prior to making their respective claims.

This is of great benefit to those buying a short lease and seeking to extend the lease without incurring the extra uplift that would be caused by allowing the lease to diminish a further two-years (since the lease extension price, known as the Premium, increases the shorter the lease becomes) or need to go through a costly lease extension claim transfer process, in which the current leaseholder starts a lease extension claim, and then transfers this claim to the purchaser, thereby allowing the purchase to take benefit of the vendor’s 2-year qualification.

However the most significant difference this will make are to those with short leases who are seeking to sell.

Prior to the change, a leaseholder seeking to sell their property with a short lease length either has to:

• seek to extend it before selling and finance all the costs associated; or
• agree with a prospective purchaser to commence a lease extension claim on their behalf, and have this claim assigned (transferred) to them together with the property sale; (only available where the lease wasn't so short that the purchaser’s mortgage lender refused to lend, or that the purchaser  is a 'cash-buyer'); or
• strike a discretionary agreement with the Landlord to extend the lease, using the proceeds of sale to fund the lease extension (which relies on the Landlord being open to such an agreement).

Where the lease was too short for a mortgage lender to agree to finance the buyer's extension, and the leaseholder could not afford to purchase the extension, and the Landlord not being open to agree a voluntary extension, the leaseholder was stuck; many would often sell their flat to a cash buyer at a significant undervalue.

However, it is now conceivable, that in such circumstances where the leaseholder wishes to sell, the statutory process, a robust process that cannot be resisted by a Landlord, could be utilised instead of the voluntary method, where the Landlord could use the leaseholder’s dire circumstances as leverage for an unfair barter.

Since the average time span of most statutory claims from commencement to completion is around 6 months (with the prospect of reducing this to a couple of months depending on how negotiations unfold), this is the far preferable outcome, compared to the vendor having to wait two years plus the lease extension claim period before being capable of doing so.

There are however certain caveats; although the statutory process can take on average six months to complete, this is not guaranteed, as there are circumstances whereby this could take even longer. For example, where parties cannot come to terms and a tribunal determination is required (quite rare) or where the Landlord is missing, the legislation requires a court process. You can read our article for more information on that subject by clicking: here

Moreover, if the vendor hopes to fund the extension using the proceeds of sale, there needs to be degree of facilitation between the timing of when a prospective purchaser is ready and able to complete the purchase, and when the lease extension completion date is due. This can be particularly involved since lease extension and enfranchisement legislation prescribes timescales for particular activities within the claim process, including how soon Completion must occur, or otherwise suffer an automatic deemed withdrawal of the claim.

Under the current law (although one of the next provisions set to be abolished) a deemed withdrawal of the lease extension claim will current render the leaseholder being barred from making a new lease extension claim for 12 months following the date of the withdrawal.

Due to these pitfalls, we would highly recommend that those embarking on this kind of scenario seek legal advice for an expert in this field to manage and mitigate these risks. Please feel free to contact us and we would be pleased to put you in touch with someone to help.

In conclusion the implementation will be considered by most to be a step in the right direction as the restriction has long been considered an unnecessary hardship. However, as discuss here, in isolation, it is not a panacea for many of the challenges faced by such leaseholders and many are awaiting the next set of implementations.

The reforms to the Premium calculation (such as the abolition of Marriage value has yet to be implemented). The Government has confirmed that they intend to consult on the rates used to set lease extension prices in the summer this year, but admit that further primary legislation will be required before these can be implemented. It seems likely that people will be unable to extend leases under the new calculations until 2026 at the earliest.

As always feel free to let us have any questions and we shall endevour to cover it within our next article.