Government abolishes two-year rule in leasehold reforms

The UK government has abolished the controversial two-year rule under the Leasehold and Freehold Reform Act 2024 (LAFRA), allowing leaseholders to extend leases or purchase freeholds without waiting two years after acquiring their property. This significant reform, effective from the end of the month, eliminates a long-standing barrier to enfranchisement and aims to simplify the process for leaseholders.

The two-year rule, introduced under the Leasehold Reform, Housing and Urban Development Act 1993, required leaseholders to own their property for at least two years before initiating enfranchisement or lease extension. Originally stemming from pre-1993 Act rules, the requirement persisted despite reforms like the Commonhold and Leasehold Reform Act 2002, which abolished residence tests for enfranchisement.

The Association of Leasehold Enfranchisement Practitioners (ALEP) has long campaigned for the rule’s removal. Mark Chick, ALEP director and partner at Bishop & Sewell LLP, welcomed the change: “This reform will make it easier for a wider class of people to access enfranchisement rights. Leaseholders can now extend leases or enfranchise qualifying properties at a time of their choosing, which is a major step forward.”

However, concerns remain over the practical implications for mortgage-dependent transactions. Chick noted: “If a lease needs to be extended due to mortgage conditions, the issue of requiring a longer lease at the point of sale remains. While purchasers can now extend leases post-purchase, they may face challenges with lenders if the lease is shorter.”

The Leasehold and Freehold Reform Act 2024 was fast-tracked before the 2024 general election, with much of its secondary legislation yet to be implemented. Mark Chick called the reform a positive move but emphasised the need for broader changes: “Today’s step is welcome, but valuation reforms, which significantly impact the cost to leaseholders, remain years away. Many vital reforms legislated in the 2024 Act still await implementation.”

Further measures under LAFRA are anticipated in 2025, including reforms to the Right to Manage process, service charges, and landlords’ costs of service charge disputes. Additionally, consultations on key issues such as capitalisation rates, deferment rates, and banning leasehold flats are expected. The government also plans to regulate managing agents and address private estate management charges.

The most transformative reform will likely come in autumn 2025, with the release of a white paper on commonhold and the Draft Leasehold and Commonhold Reform Bill. These measures aim to deliver wide-ranging changes to leasehold law, further supporting leaseholders and simplifying property ownership structures.

While the abolition of the two-year rule is a step forward, leaseholders and industry professionals are calling for continued momentum in implementing comprehensive leasehold reforms.