Leasehold Reform: The end of the two-year extension rule

The recent abolition of the two-year ownership requirement marks a significant shift in the UK's leasehold property landscape. We will explain the change and what it means for both buyers and sellers.  

Overview of the Change

Previously, leaseholders were required to own their property for a minimum of two years before they could initiate a lease extension or purchase the freehold. This stipulation often delayed homeowners' plans to enhance their property's value or marketability. With the implementation of the Leasehold and Freehold Reform Act 2024 (LAFRA), this two-year rule has been abolished, effective from the 31st of January 2025. Now, leaseholders can begin the process of extending their lease or buying the freehold immediately upon acquiring the property.  

What does this mean for buyers

For prospective property buyers, this reform offers increased flexibility and immediate control over their home. Previously, the mandatory two-year waiting period could deter buyers concerned about diminishing lease terms, especially when leases approached or fell below the critical 80-year mark, a threshold where extension costs can escalate due to 'marriage value' (the increase in the value of the property following the completion of the lease extension, reflecting the additional market value of the longer lease). The removal of this waiting period allows buyers to address lease extensions promptly, potentially enhancing the property's value and making it more attractive to mortgage lenders. However, it's essential for buyers to remain aware of other factors, such as the remaining lease length and associated costs, which still play important roles in property transactions.  

What does this mean for sellers

Sellers also stand to benefit from this reform, as properties with shorter lease terms would often face reduced marketability and value. The previous two-year ownership requirement could complicate transactions, as potential buyers might be hesitant to purchase a property with a short lease, knowing they'd have to wait to extend it, iin turn reducing the lease even further. With the abolition of this rule, sellers can now market their properties without this issue, potentially attracting a broader group of buyers. Additionally, the ability for new owners to immediately extend the lease should lead to smoother negotiations and quicker sales.  

The removal of the two-year lease extension rule is a positive development for the property industry, offering immediate benefits to both buyers and sellers. As agents, staying informed about such legislative changes ensures we can provide accurate advice and help you make the most of new opportunities within the evolving property landscape.

Thinking of selling your leasehold property, or looking to purchase? Speak to our team of experts today and get started.