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.

Mark Chick

31.1.2025

So we have the outcome of the permission hearing in the High Court today – the six claimants have been granted permission to apply for Judicial Review of various provisions in LAFRA 2024, including marriage value, the implied ground rent cap in the new valuation model, cost shifting and the issues known to affect intermediate landlords. 

The substantive hearing will not be until the end of July.  That will chime in nicely with the proposed consultation on setting rates that is promised for the later part of this year. 

It seems to me that none of these provisions can be brought into force without the government knowing where it is likely to be on these issues. This (together with the prospect of any appeals etc) may make the proposed ‘switch on’ of the valuation aspects of LAFRA some way off. 

There is no doubt much to consider when advising clients. Does this make the time line look even more like 12-18 months from a date later on this year? 

Would that mean 2027? Or maybe even later? Dependant perhaps also on the proposed Commonhold and Leasehold Reform Bill? Lots to consider.

Mark Chick

30th January 2025

The Leasehold and Freehold Reform Act 2024 (Commencement No.2 and Transitional Provision) Regulations 2025

On 22^nd January 2025,  Matthew Pennycook confirmed that he had signed the snappily entitled ‘Leasehold and Freehold Reform Act 2024 (Commencement No. 2 and Transitional Provision) Regulations 2025.’

https://www.legislation.gov.uk/uksi/2025/57/contents/made

These bring into law the provisions of Section 27 of the Leasehold and Freehold Reform Act 2024 (‘LAFRA’), which removes the requirement for a qualifying tenant to have owned their flat for more than two years prior to bringing a claim to an extended lease.

The provisions of Section 27 come into effect from the 31^st January and therefore claims made on or after this date can simply be made by the qualifying tenant.

What does this mean in practice?

It’s good news for those buying a property with a short lease – no need for a two-year wait – but, as always, things are never that straightforward. The valuation regime has not yet changed and therefore the question of whether to go ahead will require consideration, particularly if the lease extension premium is likely to be significant and might be reduced as and when the changes to ‘marriage value’ (which applies only where the lease is under 80 years) come into effect.

Good news for those who have a short lease that they are trying to sell

The fact that the buyer won’t have to wait to extend a lease will, in theory, mean that there will be no need to have the benefit of the claim assigned to the buyer, although as mentioned above, without the valuation reforms there is no other immediate benefit. The commencement does mean that the buyer can go ahead and then choose when to extend the lease.

However, this won’t avoid the issue for leases that need to be extended for mortgage reasons. In other words, if the lease needs to be ‘long’ for lending purposes then the lease extension will still have to be put in place before completion.

Legal Title – is there an issue?

Who can make the claim? The qualifying tenant 

Section 43 of the 1993 Act is still in force. The claim cannot exist separately from the lease. And therefore, if the previous owner does start the claim (for whatever reason) the claim does still need to be assigned.

The reason for this is that when you buy a property, the title register is not immediately updated. Delays at the land registry, which for a standard non-urgent transaction can take up to two years, are well documented and leave something of a ‘Registration Gap’.

In the short term, even after completion, the seller (who is still the registered owner of the title, even though they no longer own the property) is a ‘constructive trustee’ for the buyer, during the so-called ‘registration gap.’

In terms of who has title to bring the claim, this is likely to be the registered owner; and that person is the ‘tenant’ under the terms of the lease.

All well and good if the registration can be expedited (there are grounds for doing this, one of which would be hardship) but evidence must be shown to the land registry. For instance, a lease that was very short and where a delay might cause prejudice/ increasing cost on a daily basis might be good grounds. However, is the land registry ready for an influx of new applications? I am not so sure about that. So, we may still see assignments of the benefits of claims and notices for some time to come.

What does this mean in practice?

Essentially this is good news for leaseholders as there is no two-year wait to initiate a claim, but they will need to sure that they have appropriate evidence of their qualification, and this may cause some issues in practice.

Whilst we await the reforms, the question of whether to serve notice or not remains a live issue and can only be decided based on the leaseholder’s individual situation. One thing does remain clear, if you are buying a property where the lease needs extending, getting the right advice about how to approach this will still be key.

Mark Chick

28^th January 2025

Matthew Pennycook’s recent ministerial statement made on 21^st November 2024 confirmed the Government’s plans regarding the implementation of the Leasehold and Freehold Reform Act 2024 (‘LAFRA’). The statement recognised the need to ‘balance speed with care’ and also, that whilst the Government intends to ‘work at pace’ it will also ‘take time to ensure the reforms we pass are fit for purpose.’

All of this underpinned by the recognition that there are significant steps that need to be taken before any of the more ‘meaty’ provisions of LAFRA can be brought into force.

However, we do have one assurance about a ‘quick win’ for leaseholders. The statement promises that:

“We intend to commence the Act’s provision to remove the ‘2-year rule’ in January next year. This will mean that leaseholders will no longer have to wait two years after purchasing their property before exercising rights to extend their lease or buy their freehold…” 

This refers to the proposed implementation of Section 27 of LAFRA which will remove the two-year ownership rule that applies before a leaseholder can qualify for the statutory right of lease extension under the 1993 Act or the right to buy the freehold to a long leasehold house under the 1967 Act. 

Whilst we will have to wait some significant time for any of the valuation changes to come into force, this has been promised as an early new year present to leaseholders and will at least mean that where a flat is being purchased that the buyer will not have to necessarily insist that the seller serves a Section 42 Notice and that this is assigned to them. They will instead be able to initiate the claim at a time of their choosing. 

Although, if a lease needs to be extended because of mortgage conditions (e.g. the lease is under 80 years or of a length that is not acceptable because it is shorter) then the issue of needing a longer lease at completion will not go away and the only immediate solution in such cases will be a voluntary extension. In other cases, I anticipate that mortgage lenders may write in conditions such that the owner will have to initiate a claim to a lease extension within a certain specified period of completion taking place.

For those looking to buy the freehold to their qualifying long leasehold house (the lease must be a fully repairing lease of the whole – inside and out) this will also mean that those having recently purchased will not need to wait two years before initiating a claim to buy the freehold. This could be good news for anyone who has purchased in a new-build situation and wants to proceed right away to buy the freehold. 

All of this will have to be tempered with the fact that the valuation reforms are some significant way off. Therefore, whilst this may resolve matters for buyers who don’t have to wait to start a claim and won’t necessarily have to ask the seller to initiate the process for them, any bigger changes to what the leaseholder is likely to pay will have to wait for these further reforms to come to pass, which on any analysis (and my best guess) is likely to be some 12-18 months on from the middle of next year.

At the moment, we don’t have sight of any draft commencement provisions, and so these provisions are not yet in force, but we can anticipate some news on commencement provisions either as an early Christmas present or perhaps in the early part of the new year.

Watch this space for further developments.

Mark Chick 

16^th December 2024