UK Gov announcement capping ground rents at £250
The Government has announced that it will cap ground rents at £250 per year in England and Wales, as part of changes to the leasehold system.
The measures announced by the Prime Minister aim to give homeowners greater control over their properties and include new leasehold flats to be banned and existing leaseholders getting the right to switch to commonhold.
Gary Scott, Property Litigation Partner at London law firm Spector Constant & Williams comments:
“The UK Government’s newly announced cap on ground rents will, in practice, materially affect a relatively small minority of leaseholders, likely less than 25% of all those with a ground‑rent obligation. Current government estimates indicate that around 770,000 to 900,000 leaseholders pay more than £250 per year, out of approximately 3.8 million leasehold properties that still carry a ground‑rent charge.
“While this means the vast majority of leaseholders will see no direct financial change from this measure, for the much smaller group of leaseholders still burdened by onerous, doubling, or investment‑linked ground rents, the impact will substantial.
“These leaseholders often face difficulties remortgaging, selling, or affording their homes due to ground‑rent terms that have been widely acknowledged as unfair and sometimes financially hazardous. The cap therefore represents a targeted but meaningful intervention, resolving some of the most acute cases of ground‑rent exploitation and bringing relief to those who have been disproportionately affected by historic leasehold practices.
“The reduction to a peppercorn over a 40 year period also represents a measured and balanced transition which is to the benefit of both leaseholder and landlord.”
Scott Goldstein, property litigation partner from leading law firm Payne Hicks Beach, comments:
“The headline reform announced today (capping ground rents in older leases) builds on similar changes to new leases which were introduced by the Leasehold Reform (Ground Rent) Act 2022. There is a concern that the £250 ground rent cap will interfere with investments in freeholds built up by pension funds over many years, which are there to benefit millions.
“Under the new lease enforcement scheme, landlords will no longer be able to end long residential leases unilaterally. Instead, they must meet legal requirements intended to protect leaseholders. The new rules will not allow enforcement for unpaid ground rent, or for small amounts of other unpaid charges such as service charges.
“As with the removal of no-fault evictions, the Government says landlords will be protected by the courts. However, this offers little reassurance given court staff shortages and long delays. In practice, these reforms are unlikely to have much impact because changes made in 2002 already made it much harder for landlords to end residential leases, requiring a court or tribunal decision first. As a result, forfeiture is relatively rarely used in residential cases.”
Timothy Douglas, Head of Policy and Campaigns at Propertymark, comments:
“We welcome today’s announcement from the UK Government to cap ground rents and ultimately reduce them to a peppercorn rate. We know from our research with Propertymark member agents that leasehold properties with escalating ground rent will struggle to sell, even if priced correctly.
“Addressing ground rents for existing leaseholders is a key step towards a fairer leasehold system. It brings existing leaseholders on par with new leaseholders, and it tackles one of the largest barriers to selling leasehold properties.
“We also welcome steps to make it easier and cheaper to buy leasehold property and the ambition to transition towards commonhold, but agents and consumers will need clear guidance, education, and practical support to understand and navigate this change.
“A draft Bill provides a vital opportunity for policymakers to work with the sector to get the reforms right before legislation is passed into law. It is vital that the changes come in as soon as possible to support property transactions and that the costs are reduced for consumers.”
Dave Sayce, owner and Managing Director of Compare My Move:
“Today’s announcement is a step in the right direction. There should be a reasonable cap on what freeholders can charge leaseholders, and it’s good to see there’s an aim to bring ground rent down to a peppercorn rate in the future. But for many leaseholders, the cost is already too high, and £250 a year is still a hefty amount to pay for what is essentially nothing.
The reality is that buying and owning a leasehold is already far more expensive than a freehold. Compare My Move data shows the average conveyancing cost for buying a leasehold property is almost £250 higher than buying a freehold. That’s before you factor in service charges (averaging around £1,700 a year) and the potential cost of extending a lease (around £11,000 on average).
So if you are paying ground rent for the next 40 years, that could be £10,000 for no additional service, on top of the service charges that are actually meant to maintain the building. For a lot of leaseholders, that won’t feel like the reassurance the government might think it is.”
Gavin Walmsley, leasehold specialist at Irwin Mitchell, said:
“This is one of the most significant shifts in the leasehold system in decades. The £250 cap followed by a peppercorn rate will have major implications for existing leases. Large freeholders and pension funds are highly likely to consider legal action, particularly around the question of compensation.
“The Government signalled its intention to revive commonhold in last year’s white paper, yet progress has been slow and today’s reforms raise complex issues for lenders, freeholders and leaseholders. The draft Bill will now move into pre-legislative scrutiny and subject to parliamentary timings, the ground rent cap could come it force late 2028. Further consultation and challenge is almost inevitable.”
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