What is the “2 Year Rule” and Why is it Being Scrapped for Lease Extensions and Enfranchisement?

Under the original Leasehold Reform Housing and Urban Development Act 1993 (‘the Act’) leaseholders were required to have been the registered proprietor for at least two years before being able to exercise a statutory lease extension under the Act.  This ‘two-year rule’ has posed problems for those who have been purchasing leases with a low unexpired term remaining on a lease.  This triggered a complex, and sometimes difficult procedure, whereby the seller and current tenant of a leasehold property would need to agree to serve a Section 42 Notice between exchange and completion in order to circumvent the ‘2-year rule’ and commence a statutory lease extension for the benefit of the buyer. The Notice would then be assigned to the buyer post completion.  This added another layer of complexity to conveyancing transactions and often slowed them down.

With this rule abolished it means those purchasing leasehold property who wish to extend the lease can serve notice as soon as completion takes place on their landlord, triggering the statutory procedure of procuring a lease extension (currently adding an additional 90 years plus the unexpired term at a peppercorn ground rent). In turn; this gives leaseholders more bargaining power with their landlords and, leaseholders who fall short of the ‘2-year rule’ no longer have to rely on informal lease extensions where landlords could propose more onerous terms for a lease, or indeed refuse a lease extension altogether.

Further to this, delays at HM Land Registry in registrations have meant that often leaseholders would have to wait more than two years as the rules related to the date of registration and not the date of transfer.

The ‘2-year rule’ is also being abolished in enfranchisement, meaning that leaseholders of blocks of flats who have been the registered proprietors for less than 2 years can also now join in a collective enfranchisement claim. This can be viewed as a benefit not only for that immediate leaseholder but for the collective leaseholders as there are more individuals to split the cost of enfranchisement.

The Leasehold and Freehold Reform Act 2024 looks to radically change the face of lease extensions and enfranchisement. This change will no doubt pave the way for leaseholders’ rights to be enhanced in the future.