How will removing the two-year ownership requirement impact the property market?
Partner Shabnam Ali-Khan shares her thoughts on the imminent removal of the two-year ownership requirement in leaseholds, and the potential impact on leaseholders, buyers, and the wider property market.
At the end of January 2025, the two-year ownership requirement will be removed for flat leaseholders seeking to extend their leases and for house leaseholders looking to extend their leases or purchase their freeholds. These regulations follow the Leasehold and Freehold Reform Act 2024 (LAFRA).
How may these changes shape the property market?
Properties with shorter leases, especially those close to 80 years may become more appealing to buyers. There will no longer be a need to negotiate with a seller to serve a notice and assign the benefit of the notice to the buyer on completion. This will alleviate some pressure on parties.
It may increase the value of shorter leases as the buyer will be able to exercise the right upon registration of ownership at the Land Registry. However, it is important to remember, the valuation principals remain the same. The current valuation proposals set out in LAFRA are not yet in force and there may be new legislation. Therefore, it is difficult to predict what may change. Several large landlords, including Cadogan Estates and The Portal Trust have lodged legal challenges to LAFRA on the grounds it breaches the Human Rights Act 1988 as it infringes their right to “peaceful enjoyment” of property and deprives the owner of the use of them. A hearing is due to take place January 2025 to decide if the claimants can apply for judicial review. Crucially marriage value remains payable on leases below 80 years, so for many, premiums will remain unaffordable.
We may see a surge in claims as many more will qualify which may lead to a rise in new companies with little or no experience offering services. This may affect the quality of service being provided and increase risk. So, it is crucial to instruct experienced solicitors and valuers especially since the processes remain broadly the same with critical timelines. Do your research before instructing a firm. Check their credentials and experience. Ask for testimonials. Sometimes having a phone call may help to build a rapport and instil confidence.
Extending your lease or buying the freehold can be a difficult and draining process. Therefore, engaging someone who demonstrates care and understanding can make a big difference to the outcome.”
We may see a shift in the market towards freehold houses rather than leasehold. LAFRA generally requires houses to be offered on a freehold basis, with only limited exceptions. However, these provisions are not yet in force.
We must remain realistic and manage expectations. These changes may give many false hopes that there's momentum for other reforms to come in. Whilst this could be on the horizon for less controversial provisions including replacing 90 years with 990-year lease extensions, we will not see any valuation changes for a long time. There is set to be further consultation on these and we have the Commonhold and Leasehold Reform Bill 2024 and possible new legislation.
Shabnam Ali-Khan is a partner in the property law and conveyancing team, specialising in lease extension and enfranchisement matters.
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