The Government announces Ground Rent cap: What does this mean for leaseholders? 

The Government published its long-awaited proposals to tackle one of the most contentious features of the leasehold system in England and Wales. Leaseholders who pay annual ground rent have been promised a statutory cap of £250 a year on existing ground rents, with the intention that this cap will eventually reduce to a nominal, or “peppercorn”, amount after a period of around 40 years. The plans form part of a new Commonhold and Leasehold Reform Bill which the Government says will offer leaseholders substantial financial relief and greater certainty about the costs of home ownership.  

Under current law, many leaseholders find themselves obliged to pay an annual ground rent to a freeholder. This obligation is a legacy of the leasehold system, which separates ownership of each flat/unit from the structure of the building and the land it sits on. Ground rent is a payment paid by individual flat owners to the owner of the land. For many, these payments can become disproportionately burdensome over time and can complicate the sale or mortgage of the property because lenders are wary of escalating rent charges.  

The Government’s announcement confirms the Government’s manifesto commitment to address these issues. Ground rents above £250 a year will be reduced to that cap once the legislation comes into force, and the cap will, in due course, transition toward a peppercorn, before effectively removing the charge altogether over time. Ministers estimate that between 770,000 and 900,000 leaseholders currently paying above the proposed cap rate will benefit once the provisions are implemented, with particularly high numbers affected in London and the South, where roughly half to two-thirds of affected leaseholders are based. 

Alongside the ground rent cap, the Government intends to include other significant reforms in the Bill. These include a ban on new leasehold flats in most cases and the introduction of a statutory right for existing leaseholders to convert freehold blocks to commonhold ownership. Commonhold is a tenure where each owner holds the freehold of their own unit and collectively owns and manages the communal parts of the building. The Government frames this as a way of giving homeowners greater control over management and costs than the traditional leasehold model provides.  

It is important for leaseholders to understand that these proposals are still at the draft stage and will require parliamentary time before becoming law. The Government has indicated that the key elements, including the ground rent cap, are expected to come into force by late 2028, although secondary legislation and implementation plans will need to be worked through in the coming months.  

The reaction from across the housing sector has so far been mixed. Consumer and homeowners’ groups have broadly welcomed the cap as a long-overdue correction of a system many see as unfair. By contrast, some representative bodies for freeholders and institutional investors have criticised the retrospective nature of the proposals, warning that capping contractual ground rents could undermine confidence in UK property markets and potentially affect investment. These groups argue that ground rent income, while contentious, has been an established feature of the market and that abrupt statutory limits may have unintended consequences.  

For leaseholders, the immediate practical impact will depend on the terms of their existing leases and the timetable for the Bill’s passage. Those with ground rents above £250 a year should, if the legislation proceeds as outlined, see their obligations reduced once the measures come into force. However, it will be important for homeowners to monitor the progress of the Bill and to seek advice on how the changes may interact with other leasehold rights and obligations, including lease extension and enfranchisement options. 

Coodes’ residential property team will continue to monitor developments and provide updates as the Bill progresses through Parliament. In due course we will publish guidance on what leaseholders should be doing now to prepare for the changes and how these reforms might intersect with wider market practice and valuation considerations.