Two Year Ownership Rule

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Ashley Connell

Edited by Ashley Connell

Leasehold Enfranchisement Solicitor at Hetts

Understanding the Two-Year Qualifying Rule for Lease Extensions

Legal Overview

Under Section 39 of the Leasehold Reform, Housing and Urban Development Act 1993, a leaseholder must have owned the property for at least two years to qualify for a lease extension. This rule, while straightforward, has nuances that are crucial for leaseholders to understand.

Commencement of the Two-Year Period

Contrary to popular belief, the two-year qualifying period for lease extensions does not begin when the leaseholder purchases the property. Instead, it starts when the Land Registry registers the buyer's interest in the property title. This distinction is critical and often misunderstood.

Backward Calculation of Ownership Period

The ownership period is calculated retrospectively from the date of serving the Section 42 notice. It is imperative that this two-year period is continuous, with no breaks in ownership.

Legal Basis for Commencement on Land Registry Completion

Section 27 of the Land Registration Act 2002 stipulates that a buyer only becomes the legal owner of a lease upon its registration at the Land Registry. Prior to this, they are considered an equitable owner, which does not meet the criteria for a lease extension. The case of Brown & Root Technology Ltd v Sun Alliance and London Assurance (2001) reaffirms that statutes refer to legal ownership, not equitable ownership, in this context.

Navigating the Two-Year Rule

A common workaround involves the vendor, who has owned the flat for at least two years, serving a Section 42 notice and then assigning the benefit of this notice to the buyer. This practice allows a buyer to pursue a lease extension without the two-year wait.

Special Considerations

Deceased Leaseholders and Personal Representatives

In cases where a leaseholder has passed away, executors should serve a Section 42 notice before transferring the property to the beneficiaries. This action preserves the continuity of the two-year qualifying period.

Removal of One Proprietor

If a jointly held property experiences the removal of one proprietor (through sale or death), the remaining leaseholder retains the cumulative ownership period. This ensures the continuity of the qualifying period.

Possible Reform

The proposed Leasehold and Freehold Reform Bill suggests the removal of the two-year qualifying rule, signaling a significant shift in leasehold extension rights.

Note: This article provides a general legal overview and should not be considered as legal advice. For specific cases, consulting a qualified legal professional is recommended.