As promised by the government at the end of last year, the ‘two-year rule’ on UK leasehold properties has been abolished, giving more rights to property owners across the country.
The long-awaited reform of the UK’s leasehold system has taken another step forward after housing minister Matthew Pennycook signed off new regulations this week to outlaw the two-year rule from the end of this month.
Under current UK leasehold rules, when a buyer purchases a leasehold property (the majority of which are flats, but this can also include houses), they must wait for two years before they can ‘enfranchise’, or apply to either buy the freehold or buy the lease.
Now, under the Leasehold and Freehold Reform Act 2024, this will be abolished, meaning that from February, anyone who buys a leasehold home will be able to start the ball rolling on buying the freehold or extending their lease.
How could UK leasehold change under new law?
The Leasehold and Freehold Reform Act 2024 was a set of proposed legislation that was rushed through to gain Royal Assent by the Conservative government before parliament was dissolved for the general election last summer.
It contained several measures aimed at better protecting leaseholders – who are essentially homeowners that buy a lease on a property, without owning the building outright, which is a common and historic practice in the UK. The freehold is the building and the land it sits on and any outdoor spaces, which is often owned by a separate party.
When buying a house in the UK, the most common form of purchase is freehold, whereas flats and apartments are more likely to be leasehold. A leasehold comes with a fixed time limit, meaning you purchase the lease for the flat, apartment or in some cases house for a set amount of time.
The Labour government has pointed out that secondary legislation will be needed in order to enact much of the Leasehold and Freehold Reform Act, which will require several consultations.
The Act aims to:
- Make it cheaper and easier for people to extend their lease or buy their freehold.
- Increase the standard lease extension term to 990 years for houses and flats (up from 50 years in houses and 90 years in flats).
- Make freeholders or managing agents issue service charge bills in a standardised format that can be more easily scrutinised and challenged.
- Make it easier and cheaper for leaseholders to take over management of their building, enabling them to appoint the managing agent of their choice.
- Make it cheaper for leaseholders to exercise their enfranchisement rights (where they apply to purchase the freehold).
- Provide access to a redress schemes for leaseholders to challenge poor practice, which all freeholders will be required to belong to in order to be challenged by leaseholders where necessary.
- Make buying or selling a leasehold property quicker and easier by setting a maximum timeframe and fee for purchase.
- Grant homeowners on private and mixed tenure estates comprehensive rights of redress, giving them more information about what charges they pay, and the ability to challenge how reasonable they are.
Industry reactions
The fact that UK leasehold reform has begun to make more progress is largely welcomed across the industry. The current UK leasehold system is viewed by most as an outdated one that is unfair on some leaseholders, particularly in light of the ‘ground rent scandal’ that has affected some leasehold house-buyers in recent years.
Commenting on the latest UK leasehold change announcement, Timothy Douglas, head of policy and campaigns at Propertymark, said: “Yesterday’s questions on Housing, Communities, and Local Government held in the House of Commons contained reassuring commitments from the UK Government, such as ending the unfair practice of ‘fleeceholding’, which combines freeholding and leaseholding, promoting a brownfield-first approach to housebuilding that Propertymark has argued for in order to safeguard the green belt, and £1.5 million to go towards local councils to use their High Street Rental Auctions powers to bring life back to England’s empty high streets.
“However, Mr Pennycook missed out on an ideal opportunity to clarify when the Leasehold and Freehold Act 2024 will be implemented properly, which would provide much needed reassurance and a greater degree of fairness to leaseholders in England and Wales who are currently faced with excessive leasehold charges.”
Echoing this sentiment, Linz Darlington, managing director of of Homehold, said: “While this is a welcome development, removing the ownership condition is a drop in the ocean in terms of what is needed from leasehold reform. It is a small change which will benefit a small proportion of leaseholders.
“We estimate that hundreds of thousands of leaseholders are waiting for the more significant changes to the lease extension regime which have been promised to make it “cheaper and easier” for them to extend their leases.”