Ground rents to be capped in major leasehold change 

The government has announced a major leasehold reform package, including capping ground rents in England and Wales at £250 a year. The reforms, published in a draft Leasehold and Commonhold Reform Bill, could bring significant savings to millions. In this blog, we explain the changes and look at what difference it will make to leaseholders. 

Major reform 

Following a series of reforms to homeownership in the past couple of years, the government has introduced another major change by putting a cap on ground rents to be paid by leaseholders at £250 a year. 

As part of its plans to phase out leasehold properties, ground rents will ultimately be reduced to a peppercorn (a symbolic amount which in practice means zero) in 40 years. In 2022, ground rents were abolished for most new residential leasehold homes, though not for existing properties. 

Moreover, the reforms include proposals to ban the sale of new leasehold flats, abolish forfeiture, whereby leaseholders can lose their home if they default on a debt, and give homeowners greater control over how their buildings are managed. 

Timeline to abolition? 

The bill will now face the usual route through Parliament, starting with scrutiny in the Housing Committee. If it navigates all the parliamentary steps, it is expected that the new cap could come into effect by late 2028. 

Secretary of State for Housing Steve Reed said that the reform is about “helping millions of leaseholders by saving them money and giving them control over their home.” He added that the government is “strengthening home ownership and calling time on leasehold for good.” 

Why a ground rent cap matters to leaseholders 

Roughly five million leasehold homes in England and Wales would be impacted by these changes. For leaseholders, the average annual ground rent was roughly £304 a year, so the new cap will save money for most people living in a flat. In some cases, these savings could be hundreds of pounds. 

Beyond the cash savings, the ground rent cap will improve the appeal of leasehold properties by taking away one of the major risks. As such, it will make it easier for leaseholders to sell their property too. 

Challenges to adoption 

Although most industry figures welcomed the change as a necessary step to making an unfair system more equitable, some questioned the impact on the UK’s reputation for investors. Throughout the parliamentary process, ministers will have to answer questions about the fairness of the reform for leaseholders and freeholders. 

On the other side, some campaigners have questioned why leaseholders must wait four decades until ground rents will eventually be scrapped. 

Get in touch 

The announcement that ground rents will be capped at £250 a year is good news for leaseholders in England and Wales, yet there remain many uncertainties around the legal situation. 

If you are a leaseholder planning your next move, specialist legal advice may be needed. Get in touch with our Lease Extension team on  0203 871 0039 or email leasehold@attwaters.co.uk to find out how we can help you.