Homeowners who have recently purchased a flat have received a significant boost following a landmark legal change that allows them to extend their leases without waiting two years. This reform, part of the Government’s broader overhaul of leasehold and freehold regulations, removes a major barrier for leaseholders seeking to secure the long-term value of their property.
Lease extensions are crucial as they not only increase a property’s market value but also make it easier to sell. Under the new law, leaseholders applying for an extension will automatically be granted a 990-year lease with a nominal, or "peppercorn," ground rent, eliminating future ground rent obligations.
Leasehold properties lose value over time because of a diminishing term (number of years left on the lease) and the need to pay ground rent (an annual payment which often doubles every 5-10 years). Extending a lease is an important right because it allows leaseholders to increase the number of years left on their lease and to remove their ground rent burden, protecting and increasing the value of their property.
Mike Somekh, founder of the Freehold Collective, described the new rule as a “welcome relief” for beleaguered leaseholders trapped in unfair leases with high rents and service charges.
“It may well result in an increase of 15% in the value of your property if you have less than 70 years remaining on your lease,” he said.
Having a longer lease will also help buyers get a mortgage as most lenders won’t lend on properties with leases shorter than the mortgage term.
Mike Somekh added: “The intention of the original rule was to avoid ‘buy-and-flip’ property speculations where investors would purchase a short lease flat, extend the lease and sell it on for a large profit. However, increasing numbers of ordinary homeowners found themself in a trap where they could not extend their lease for two years after moving in. They found that they had to pay far more for the same thing whilst continuing to pay ground rent for two years.”
The abolition of this two-year rule will help tens of thousands of leaseholders that now qualify to exercise their right.
Mike Somekh pointed out that prospective buyers will also benefit. “To circumvent the two-year-rule, a buyer often required the seller to start the lease extension process, so that they could inherit the right to complete the process from day one. However, everyone complained that this workaround created additional cost, and many found their sale or purchase fell through.”
Problems still remain, he warned. People still face huge issues due to the infamous Land Registry backlog, for example in proving they own a property, a key requirement to extend their lease. Registrations that used to take 2-4 weeks can now take over two years to appear on the Land Registry. This despite a recent increase in fees of a staggering 233% charged by the organisation.
Overall, the abolition of the two-year rule appears to be a step in the right direction for the Government who has promised to make home ownership cheaper, easier and faster without unintended consequences.
