Ground rent cap for residential leaseholds

There have been various changes and proposals made in recent years to address the perceived unfairness that is leasehold property. The latest update will be looking to build upon the changes from the Leasehold Reform (Ground Rent) Act 2022 which amongst other things, restricted new ground rents and the current implementation of the Leasehold and Freehold Reform Act 2024 which granted rights like standard extension terms and a simpler freehold purchase system, but most of which are still yet to be implemented following royal assent in May 2024.

Why ground rent reform is needed

Ground rents are fairly unregulated and are generally determined solely based on the lease terms, many of which the new purchaser has absolutely no say in and no ability to negotiate over. This has in rare occasions had the effect of unfair increases some of which included doubling ground rent, which received notoriety over the last 20 years or so. The increases appear manageable to start the term, but these soon would get out of control with no ability or leverage to re-negotiate. These sorts of provisions or similar also often meant that mortgage companies were unwilling to lend and new buyers unwilling to take on the lease.

Government’s latest leasehold and commonhold proposals

In a further attempt to address these issues, on 27 January 2026, the Ministry of Housing published a draft Commonhold and Leasehold Reform Bill proposing an absolute cap on the ground rent that can be charged in leasehold properties. The provisional timeline for the bill to come into force is late 2028, however the bill has not been presented to parliament yet and is still very much in the early stages. It is also worth noting that, as demonstrated with the Leasehold and Freehold Reform Act 2024, even if legislation is passed, this does not mean that the changes are instantaneous.

New rules on ground rent and leasehold charges

As detailed above, in 2022, ground rent was banned for most new residential leasehold properties. The new proposals are aiming to further this by capping existing ground rent at £250 per annum for a 40-year transitional period for current leases before becoming a peppercorn rent (effectively zero), thus eliminating ground rent. This then ties into the recent implementation of the Leasehold and Freehold Reform Act, which provides tenants with the right to vary their lease which would reset the ground rent to a peppercorn rate.

Impact on landlords, tenants, and freeholders

These changes will affect landlord’s ownership in flats and ultimately how much income the flats produce as the government predict this is set to save a tenant approximately £4,000 over the course of their lease. This appears to further highlight the attractiveness of the model of residents owning their own block which was made easier with Leasehold and Freehold Reform Act 2024. If a commercial freeholder is unable to make any profit while holding the asset, whilst also retaining obligations under that lease, there may be less incentive for them to take an active role in the future of the block.

Potential challenges of the new leasehold system

It is worth noting that whilst leaseholders having a more hands-on approach regarding the management of their block appears to be a good thing, this is not always the case as anyone with a co-leaseholder/resident freeholder who is unwilling to approve costs of necessary works or simply unwilling to respond to management topics, will attest. Having a sensible and pragmatic freeholder can ensure proper management, that works get done on time and efficiently. If this model is going to prove rarer, then there may be knock on effects which go beyond just saving the tenants money.

What leaseholders and landlords need to know

There are clearly pros and cons to this sort of system, but what appears to be clear is that the legislative agenda is moving this way and so changes like this will not have come as a surprise.

If any leasehold advice is needed, you can contact our dispute resolution team.