For many leasehold flat owners and prospective buyers, extending a lease has long been complicated. One key challenge has been the so-called “Two-Year Rule,” which requires that flat owners have been registered for two years before they can serve a formal Statutory Notice to extend their lease. However, from 31 January 2025, this cumbersome rule ceased to apply, thanks to the Leasehold and Freehold Reform Act 2024.
In this blog, we explore what this change means for buyers, sellers, and advisors and why, despite the simplification, the length of a lease remains a critical consideration.
What Was the Two-Year Rule?
Historically, if you owned a flat and wanted to extend its lease, you were required to wait until you had been the registered owner for two years before serving a Statutory Notice to your freeholder. This rule led to a number of practical challenges:
- Pre-Completion Notices: Sellers often had to serve Statutory Notices before a sale was completed. Once the sale was finalised, the buyer received the benefit of these notices.
- Complex Process: Coordinating this process was complicated and typically required specialist advice. In many cases, professionals like Attwells’ lease extension specialist, Christina Greer, were called in to help navigate the intricate details and ensure the notice was valid and properly assigned.
Why Was This a Problem?
The two-year requirement added layers of complexity to property transactions. Sellers and buyers had to carefully time their actions to avoid delays, and the extra-legal work often resulted in increased costs and stress during an already challenging process.
What’s Changing with the New Reform?
- Immediate Eligibility from Day One
- Under the Leasehold and Freehold Reform Act 2024, the new rules came into force from 31 January 2025.
Here’s what’s new:
- No Waiting Period: New owners can now serve a Statutory Notice to extend their lease immediately upon registration of ownership. Thus, the benefit of a lease extension is available from day one.
- Simplified Process: Sellers no longer need to serve a notice of pre-completion and subsequently assign it to the buyer. This simplification should streamline transactions and reduce the potential for delays and errors.
Implications for the Process
Removing the two-year waiting period makes extending a lease far more straightforward. Buyers no longer need to depend on the seller to initiate the process, which can lead to a smoother transition of ownership and more transparent negotiations.
What Does This Mean for Buyers and Sellers?
For Buyers
- Immediate Action: Once you become the registered owner of a flat, you can take immediate steps to secure a lease extension. This is particularly beneficial if you’re concerned about the diminishing value or marketability of a short lease.
- Greater Autonomy: Buyers will now have more control over the lease extension process, as you won’t be reliant on the seller’s pre-completion actions.
- Ongoing Concerns with Short Leases: Despite the procedural improvements, the remaining term of the lease is still an important factor. Properties with a lease term of less than 100 years will continue to require careful evaluation, as a short lease can impact both the property’s value and the availability of mortgage finance.
For Sellers
- Reduced Pre-Completion Burden: Sellers are no longer under pressure to serve Statutory Notices before completion, which simplifies the selling process.
- Enhanced Attractiveness: Properties can be more attractive to buyers who are reassured that they can secure a lease extension immediately after purchase without needing to navigate the old, complicated process.
- Ongoing Considerations: The Importance of Lease Length
Even with the new rules simplifying the process, the term of a lease remains a crucial consideration:
- Impact on Property Value: Short leases tend to depreciate in value more quickly and can be less attractive to future buyers.
- Cost Implications: Extending a lease with fewer than 100 years remaining can still be expensive. The cost generally increases as the term shortens, particularly if it falls below critical thresholds (like 80 years).
- Mortgage and Lending Issues: Lenders may be hesitant to finance properties with very short leases unless there’s a clear plan to secure a lease extension.
- Because of these issues, any purchaser of a property with a lease of less than 100 years will still need specific advice regarding their rights and the potential costs involved.
Expert Advice is Still Key
While the end of the Two-Year Rule represents a significant step forward in simplifying the lease extension process, it doesn’t eliminate all the complexities, especially regarding the financial and legal implications of a short lease. Specialist advice remains essential for buyers looking at properties with leases under 100 years.
Christina, with her extensive experience in lease extensions, continues to be a valuable resource. Her expertise can help clients understand their options, negotiate with freeholders, and ensure that the lease extension process goes smoothly, safeguarding their investment.
If you would like to speak with Christina about your lease extension issues, please call 0203 697 4175
