In a move to overhaul one of the most criticised features of the English and Welsh housing system, the UK government has announced that ground rents will be capped at £250 per year for existing leasehold properties. The ground rent cap forms a central plank in the forthcoming draft Leasehold and Commonhold Reform Bill, which will be introduced to Parliament imminently.
The Background on Ground Rent
Historically, ground rents have been a contentious feature of the UK’s leasehold system. Ground rent sees leaseholders pay an annual fee to a freeholder for the right to occupy a property they otherwise own, often without any corresponding service or benefit. Critics have long argued that escalating ground rents, sometimes doubling every few years, can trap homeowners in unfavourable leases, making mortgages difficult to secure and sales problematic.
At present, around five million leasehold homes across England and Wales continue to attract ground rents, despite previous legislative steps banning rising or onerous rents on newly granted leases. The 2022 Leasehold Reform (Ground Rent) Act already halved this burden for future homeowners by reducing ground rent on new leases to a nominal “peppercorn”, effectively zero, but left existing leases untouched. The new cap at £250 annually represents a compromise: a meaningful reduction for many leaseholders, while stopping short of retroactively abolishing all payments which takes into account the equally strong views of freeholders and investors.
Commitment to Tackle Ground Rent
This reform fulfils a manifesto commitment from the Labour Party’s 2024 general election campaign to tackle unregulated and unaffordable ground rent charges. According to government sources, the change is aimed at boosting housing affordability and alleviating cost-of-living pressures on homeowners, particularly in areas where ground rents have historically risen well above affordable levels. This will cap ground rents at £250 per annum for a 40-year transitional period, after which ground rents will reduce to a peppercorn. This extends the protections under the Leasehold Reform (Ground Rent) Act 2022 (which applied to new leases) to pre-2022 Act leases.
In sum, the £250 cap on ground rents marks a significant step in transforming the leasehold system. While it stops short of a total abolition of leasehold hierarchies, it promises tangible relief for millions of leaseholders and signals a broader commitment to housing reform in England and Wales.
When Will the Ground Rent Cap Come Into Effect?
Nevertheless, the implementation of the ground rent cap policy is not immediate, with no clear timeline on when the draft Leasehold and Commonhold Reform Bill will come into effect. Government messaging has hinted that it may not come into effect until near the end of the Parliament, around 2028 or 2029. This is separate to the Leasehold and Freehold Reform Act 2024, which has been held up by legal challenges since it became law and therefore has also not yet come into effect.
What is the Impact on Sellers?
- Improved saleability: the £250 cap removes a major conveyancing and mortgage red flag.
- More stable pricing: reduced risk of value discounting caused by escalating ground rents.
- Fewer transaction delays: fewer lender and buyer objections during legal enquiries.
What is the Impact on Buyers?
- Lower legal and financial risk: ground rent exposure becomes predictable and capped.
- Greater mortgage security: reduced risk of future remortgage or resale issues.
- Particular benefit to first-time buyers, who are most affected by onerous lease terms.
If you have any questions or would like to purchase, sell or remortgage a leasehold property, please feel free to contact info@lisaslaw.co.uk. We are here to help.
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