Two-Year Rule For Lease Extensions And Enfranchisement Abolished

Leaseholders can extend their lease under an informal or formal statutory route.

Informal Route

Under the informal route, a leaseholder can approach the freeholder and ask whether they would agree to negotiate a lease extension. The freeholder does not need to respond or agree to this.

The benefits of this process are that it could save time and money in the long run, as the terms may be agreed between the parties. 

The risks are that the freeholder may only agree to extend a lease by including onerous terms in the new lease or requesting a high premium. 

As there is no obligation on the freeholder to agree to this, a leaseholder may hit a dead end in negotiations so would have to then go down the formal route.

Formal Route

Under the formal route, a leaseholder has more protections, and the process is prescribed by statute.

There are timescales to be followed, and a formal valuation would agree the premium for the lease. 

The leaseholder must serve a Section 42 notice on their landlord, who then has two months to respond.

The downside to this route is that a leaseholder will have to agree to pay the freeholder’s legal and valuation costs as well as their own.

Due to the strict steps involved, it can also be a slower process. If terms cannot be agreed, then the court may have to get involved.

Previously, one of the qualifying conditions for utilising the formal route is that you would have had to own the property for two years.

This may mean that people who previously have been put off buying leasehold property could be more inclined to proceed in the knowledge that they can quickly deal with a lease extension or enfranchisement as soon as they complete their property purchase.

They will not be at an unfair disadvantage as they would previously have had to wait for two years, effectively meaning they lose out from the outset.

Sellers who previously may have agreed to assign the right to extend the lease or enfranchise, or included this as part of the sale of their property may also benefit from this change.

They no longer need to start this process and deal with this with their sale in order to incentivise buyers to purchase their property.

This recent change may drive the premium that freeholders may try to charge for lease extensions and enfranchisement. 

Campaigners believe that there is still some room for improvement in the process overall, and this may be dealt with by future legislation.