Breaking: Leasehold Reform Scraps Two-Year Wait Rule From January 2025

The government will reshape the scene of property ownership in England and Wales through a groundbreaking leasehold reform. Starting January 31, 2025, property owners won’t need to wait two years before extending their lease or buying the freehold. This 31-year old rule required leaseholders to wait after purchasing their property. The Leasehold and Freehold Reform Act 2024 now makes the process easier for property owners.

Housing Minister Matthew Pennycook sees this as the first step toward a complete overhaul of the leasehold system. The Leasehold Reform, Housing and Urban Development Act 1993 created this requirement initially. Property buyers can now make their statutory claim right after becoming registered legal owners. These changes make enfranchisement rights available to more property owners.

Major Changes Under Leasehold Reform Act 2024

The Leasehold and Freehold Reform Act 2024 got royal assent on 24 May 2024 and brings major changes to property ownership rules in England and Wales. This new law wants to give leaseholders stronger rights through several key measures.

One of the most important changes extends the standard lease term to 990 years for both houses and flats, while reducing ground rent to zero. The Act makes it cheaper for leaseholders to claim their rights because they don’t have to pay their freeholder’s costs anymore.

The new law brings these key reforms:

No more sales of new leasehold houses, except in rare cases
Easier process for leaseholders to manage their buildings
Mandatory redress scheme membership for freeholders who manage buildings directly · Better clarity on service charges and admin fees

The government has a clear timeline to put these changes in place. Everything starts in January 2025 by removing the two-year ownership rule. The next steps involve discussions about banning buildings insurance fees and setting new rates to calculate enfranchisement premiums.

The government will release a White Paper about commonhold reforms in early 2025. Later this year, they’ll present a Draft Leasehold and Commonhold Reform Bill. These changes will help current leaseholders and make commonhold the standard way to own flats.

Practical Implications for Property Transactions

Property transactions across England and Wales have changed with the removal of the two-year ownership requirement. This reform impacts current and prospective leaseholders by a lot and reshapes the property market.

These changes make property transactions easier. Leaseholders can extend their lease by 990 years with zero ground rent. The new online calculator helps people figure out costs when buying freeholds or extending leases.

Property transactions now follow these budget-friendly measures:

Premium calculations no longer include marriage value.
Government sets standard calculation rates
Leaseholders get discounts on their improvements

Short lease properties look more attractive to buyers now. New owners can extend their leases right away without waiting. The exact costs aren’t clear yet until premium calculations come out.

The Act tackles transaction costs head-on. It puts limits on time and fees needed to get home buying and selling information. This makes leasehold property deals faster and cheaper.

Mortgage lenders will likely see leasehold properties in a better light, especially those with shorter leases that used to cause financing problems. Better mortgage access and loan terms could become available for leasehold property purchases.

Industry Response and Market Impact

The Leasehold and Freehold Reform Act 2024 has drawn mixed reactions from industry stakeholders. At first, the Royal Institution of Chartered Surveyors (RICS) supported the reforms but expressed concerns about implementation timelines and market stability.

These changes will affect the property market in several ways. Research shows that 72% of industry members have noticed homebuyers’ growing awareness of leasehold issues in the last five years. Property values might rise because of simpler lease extension processes and the removal of marriage value.

However, freeholders and institutional investors have raised serious concerns:

Potential loss of ground rent income
Reduction in asset values
Risk of insolvency for some landlords · Effect on residential portfolio investments

The Ground Rents Income Fund, which manages about 19,000 units across 392 assets, reports negative effects on its portfolio’s net asset value. Some investors have paused their residential portfolio investments until they get clarity on implementation.

Property experts believe these reforms could strengthen market stability, despite the challenges. Short lease properties might appeal more to buyers, though this depends on the final premium calculations for lease extensions. Mortgage lenders could find leasehold properties more attractive, which might improve financing options for buyers.

Conclusion

The Leasehold and Freehold Reform Act 2024 brings major changes to property ownership rules in England and Wales. Property owners no longer need to wait two years as the first step toward detailed reform. This makes lease extensions and freehold purchases more available and affordable for current and future leaseholders.

Property owners can now extend leases to 990 years with zero ground rent. The new efficient calculation methods bring more transparency and fairness to the market. These changes want to protect leaseholder interests and maintain market stability. Market responses have been mixed. Some investors worry about the impact, but the reforms could make mortgages more available and boost property values.

The property sector must adapt to these important changes that will reshape the market. The government’s steadfast dedication to future reforms includes a predicted White Paper on commonhold. This suggests continued progress in property ownership structures through 2025 and beyond.

FAQs

What are the key changes introduced by the Leasehold Reform Act 2024? The Act abolishes the two-year ownership requirement for lease extensions and freehold purchases, increases standard lease extensions to 990 years with zero ground rent, and introduces measures to make it cheaper for leaseholders to exercise their rights.
When will the new leasehold reforms take effect? The initial phase of reforms, including the removal of the two-year ownership rule, will come into effect from 31 January 2025. Further changes will be implemented in stages throughout 2025 and beyond.
How will these reforms affect property transactions? The reforms will streamline the process of extending leases and buying freeholds, potentially making short-lease properties more attractive to buyers and improving mortgage accessibility for leasehold properties.
What impact will the reforms have on property values? Property values could see positive movement due to the easier lease extension process and removal of marriage value. However, the exact impact will depend on the final premium calculations for lease extensions.
How have industry stakeholders responded to these reforms? Responses have been mixed. While many welcome the changes as beneficial for leaseholders, some freeholders and institutional investors have expressed concerns about potential loss of income and reduced asset values.