The Leasehold and Freehold Reform Act 2024 (LAFRA) has officially abolished the contentious two-year rule, simplifying the process for leaseholders to extend their leases or purchase their freeholds without being constrained by the length of their ownership. This significant change will take effect at the end of the month, marking a milestone in leasehold reform.
Removal of the two-year rule explained
Under the previous law, leaseholders were required to own their property for at least two years before initiating enfranchisement or extending their lease. This requirement, set out in the Leasehold Reform, Housing and Urban Development Act 1993, was viewed as an unnecessary barrier by many industry professionals.
The two-year rule was a remnant of older legislation that tied enfranchisement rights to residency periods. However, the 2002 Commonhold and Leasehold Reform Act abolished residency tests, making the two-year rule seem increasingly outdated.
Commenting on the reform, Mark Chick, director of the Association of Leasehold Enfranchisement Practitioners (ALEP) and partner at Bishop & Sewell LLP, said: “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.”
Broader implications for leaseholders and landlords
While the removal of the two-year rule is a positive step, other challenges remain. Chick highlighted that leaseholders with shorter leases may still face hurdles due to mortgage lender requirements. “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 – then the issue of needing a longer lease at completion of the sale remains,” he said.
Chick added: “It is 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. However, we will have to wait to see how lenders respond to this change.”
Next steps in leasehold reform
Although the abolition of the two-year rule is a significant development, much of the secondary legislation under LAFRA remains to be implemented. The Act, which received royal assent in May 2024, was fast-tracked ahead of the general election, but many of its provisions are yet to take effect.
Chick described the reform as “a step in the right direction” but noted that “many of the much-needed reforms, including those legislated for in the previous government’s 2024 Act, remain some way off.”
Additional changes expected in 2025 include reforms to the Right to Manage process, updates on service charges, and measures addressing landlords’ costs in service charge proceedings. The government has also pledged to introduce a white paper on commonhold and a Draft Leasehold and Commonhold Reform Bill later this year, which could pave the way for further transformative changes.
