The UK government has officially abolished the two-year rule under the Leasehold and Freehold Reform Act 2024. This reform enables leaseholders to extend their leases or purchase freeholds without the need to wait two years after acquiring their property. Set to take effect on 31 January 2025, the change marks a significant milestone as it is intended to eliminate barriers to enfranchisement and grant greater power to leaseholders.
The Current System Under the 1993 Act
Under the Leasehold Reform, Housing and Urban Development Act 1993, Section 42 allows qualifying leaseholders the right to formally request a lease extension from their landlord or freeholder. The process begins when the leaseholder serves a Section 42 notice, detailing the premium they are willing to pay and other statutory requirements.
This right to extend is contingent on specific eligibility criteria:
Practical Implications of the Removal of the Two Year Rule
With the removal of the two-year rule, buyers of short-lease properties will no longer need to wait for any requisite period before starting the process to extend their lease. Instead, they can immediately upon becoming the registered owner of the leasehold interest initiate the procedure.
Why Is the Two Year Rule being Repealed?
The abolition of the two-year rule is part of the government’s broader reform initiative designed to simplify the leasehold system and address concerns about fairness and transparency.
Removing the waiting period offers greater flexibility to leaseholders, allowing them to extend leases directly after purchase. Leaseholders can now address lease extensions without being constrained by ownership duration. Thereby granting them immediate control over their properties while increasing their investment’s rental and resale value. Importantly, significant risk is reduced for buyers as they avoid inheriting invalid notices or uncertainty around what the premium will be after the two-year ownership period. It is hoped that this reform may incentivise the purchase of short lease properties.
Fundamentally this reform underscores the government’s aim to create a streamlined and equitable leasehold system that empowers leaseholders with greater rights. Freeholders may express concern towards this reform. As previously, under the 1993 Act, they could negotiate higher premiums with sellers or their purchasers who sought greater certainty regarding the cost and timing of a lease extension.
Conclusion
The abolition of the two-year rule under the Leasehold and Freehold Reform Act 2024 represents a transformative moment for leaseholders across the UK. By reforming the process and granting immediate rights to new property owners, the government is taking decisive steps to modernise property law and address long-standing inequities.
This reform lays the groundwork for a fairer and more transparent housing market, benefiting leaseholders and making leasehold properties more attractive and manageable for future buyers. Further change remains on the horizon as Housing Minister Matthew Pennycook has emphasised that this reform marks the first step in a comprehensive overhaul of the current leasehold system.
