End of a two-year leasehold rule to help millions of homeowners
A CONTROVERSIAL rule has been axed giving millions the power to extend or buy their leases sooner.
Until now they have had to own the property for at least two years.
When you buy a property it's either freehold or leasehold. With a freehold you own the property and the land it's built on.
But with leaseholds, you own the property and lease the land from the freeholder.
Leaseholds are typically flats, though this is not always the case. There are around 4.77million leasehold properties in England.
A lease needs to be extended when it falls below a certain number of years.
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The shorter a lease gets the more expensive it becomes to extend it.
New rules brought in today mean that homeowners can do this from the first day of owning the property and no longer have to wait two years.
They can also ask to buy the leasehold from day one.
As leaseholders usually have to pay ground rent and service charges, buying the leasehold means you have full control over what you pay.
In recent years many leaseholders have complained of sharp rises in these costs.
The change has been welcomed as "long overdue" and a boost for anyone buying a leasehold home by legal experts.
Michelle Lawson of Lawson Financial, said: “A Dickensian quirk of the leasehold industry has finally been kicked into touch.
"It has never made sense to have a two-year wait and this will open many doors for property owners and property beneficiaries to now tidy up the ownership.
"This will also make for a more streamlined house buying process as right now it can create all manner of issues and jeopardise sales or extend transaction times."
The change is part of wider reform of leaseholds designed to give owners more rights and better protections.
Plans for ditching the two-year rule were first announced last year, though at the same time other plans for changes were ditched.
Housing Minister Mathew Pennycook last week confirmed the change would come in to force from today (January 31, 2025).
James Khakpour-Smith, partner at Taylor Walton Solicitors said: “This is good news for the owners of leasehold flats and houses as many have been delaying their next move on the property ladder whilst they waited to see what would happen.
HOW DOES LEASEHOLD WORK?
A "leasehold
This tenure tends to be more common with flats, although some new-build housing developments are leasehold too.
Leasehold homes have a number of years left on their "lease". For new flats, this typically starts at 999 years.
In theory, if the lease on a leasehold property expires, the property is automatically transferred back to the "freeholder" who owns the land.
This rarely happens in reality, but this is because leasehold owners end up paying to extend the lease term on their home, which can be very costly.
The fear of being stuck with a property with a lease that could expire or cost a fortune to extend is putting off buyers, and in turn this is making lenders wary of those homes as they are perceived to lose value over time.
Typically, the cost of extending a lease can range between £3,600 and £6,598, according to SAM conveyancing.
If the remaining lease is short, it will make it harder to find a lender happy to lend without it being extended.
When you buy a property, you should be advised about its tenure - whether it is leasehold or freehold.
Make sure that you ask the estate agent when you view the home as they should know or be able to find out.
However, if you've already bought a property and aren't sure if it's leasehold, it should say in the legal documents you got when you bought it.
If you can't find these, you can look your property up on the Land Registry, where all homes are recorded
You can look yours up on the government website at: www.gov.uk/search-property-information-land-registry
The Leasehold Advisory Service has a calculator you can use to estimate how much it will cost you here: www.lease-advice.org/calculator/.
"Whilst more changes to legislation will come, some properties with shorter leases will now be easier to sell."
Sellers will no longer need to make complex provisions in the sale of a property to include the lease extension as part of the sale, he added.
WHAT LEASEHOLD RULES ARE CHANGING?
The Leasehold and Freehold Reform Act (LFRA) was first introduced under the Conservative government in May 2024.
At the same time a vow to cap ground rents on leasehold flats under the Renters Reform Bill, impacting around five million desperate homeowners, was scrapped.
The LFRA also wants to give leaseholders the option to extend leases by up to 990 years.
Currently the maximum is 90 years for a flat and 50 for a house.
Under the plans the marriage value mechanism which is currently used to determine the cost of extending the lease if it's under 80 years will be abolished.
These two changes have yet to come in as further legislation needs to be put through Parliament to bring it in to law.
There's no current timetable for them to come in but experts say it could be later this year or next.
The government said in November last year that it plans to consult on proposed changes to service charges and legal costs in 2025.
It will also consult on how costs are calculated when buying leaseholds this summer.
The government has also promised further reforms not in the LFRA to end the "feudal" leasehold system and replacing it with commonhold.
Commonhold is where all the different residents in a development partially own the land and are jointly responsible for managing it.
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Meanwhile changes under the Act have been promised from spring giving more homeowners the right to take over the management from freeholders under "right to manage".
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