"This isn't a small tweak as it effectively removes long-standing contractual rights that pension funds and ground-rent investors have relied on, reducing asset values overnight and raising questions about future investment in new housing"
The government's announcement of a £250 annual ground rent cap for England and Wales has drawn mixed reactions from the property sector, with supporters welcoming relief for leaseholders while investors warn of serious consequences for pension funds and future housing delivery.
Prime Minister Keir Starmer revealed the reforms in a TikTok video, stating the changes would save homeowners hundreds of pounds annually. The measures, published in the draft Leasehold and Commonhold Reform Bill introduced on Tuesday, also include a ban on new leasehold flats and grant existing leaseholders the right to switch to commonhold.
Paula Higgins, chief executive HomeOwners Alliance, said, "We have consistently called for ground rents to be abolished and reduced to a peppercorn, because homeowners should not have to pay for the ground under the home they own. We are very pleased that the government’s draft Bill promises to cap ground rents to £250 and eventually peppercorn for leaseholders and put an end to the outrageous practise of escalating ground rents."
"But flat owners should be aware it is a proposal, not yet the law, and there are still significant hurdles to clear before these changes take effect. After years of delay, the financial sector and vested interests should now step aside and allow these reforms to go unchallenged. Time has been called on treating homeowners as a lucrative income stream.”
"We welcome today's announcement from the UK Government to cap ground rents and ultimately reduce them to a peppercorn rate," said Timothy Douglas, head of policy and campaigns at Propertymark. "We know from our research with Propertymark member agents that leasehold properties with escalating ground rent will struggle to sell, even if priced correctly."
Douglas noted that addressing ground rents for existing leaseholders brings them on par with new leaseholders and tackles one of the largest barriers to selling leasehold properties. However, he stressed that agents and consumers will need clear guidance, education and practical support to understand and navigate the changes.
The reforms affect approximately 770,000 to 900,000 leaseholders who pay more than £250 per year, out of approximately 3.8m leasehold properties that still carry a ground rent charge. This means the vast majority of leaseholders will see no direct financial change from the measure.
"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 be substantial," said Gary Scott, property litigation partner at London law firm Spector Constant & Williams.
"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."
Scott added that the cap represents a targeted but meaningful intervention, resolving some of the most acute cases of ground rent exploitation. 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.
However, concerns have emerged about the impact on institutional investors and pension funds. The Residential Freehold Association condemned the proposals as an unprecedented interference with existing property rights, warning that compensation could exceed £27bn according to the previous government's own impact assessment.
"The headline reform announced today builds on similar changes to new leases which were introduced by the Leasehold Reform (Ground Rent) Act 2022," said Scott Goldstein, property litigation partner from law firm Payne Hicks Beach. "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."
Katie Cohen, residential property partner at Keystone Law, noted that the proposed cap provides a degree of certainty for leaseholders and should assist with affordability and marketability. "The removal of an established income stream for freeholders will need to be balanced against the policy objective of improving outcomes for leaseholders," Cohen said. "It is important that all interested stakeholders engage with, and respond to, the consultation to help shape a framework that is clear, workable and proportionate."
Balraj Birdi, real estate partner and head of living investment at global law firm Eversheds Sutherland, warned of broader market implications. "The draft Commonhold and Leasehold Reform Bill is a major shift in how long-term property ownership is structured in England," said Birdi.
"The headline is a £250 cap on ground rents for 40 years before dropping to a peppercorn, which will be welcome news for leaseholders facing escalating costs. However, this isn't a small tweak as it effectively removes long-standing contractual rights that pension funds and ground-rent investors have relied on, reducing asset values overnight and raising questions about future investment in new housing."
Birdi added that ending rent review mechanisms will give relief to tenants but creates uncertainty for investors and lenders who have built portfolios around predictable income streams. The earlier ban on new ground rents was expected and priced in, but these reforms go much further because they affect existing leases.
Tom Baylis, senior associate with JMW and specialist property litigation lawyer, suggested the reforms could have unintended consequences for future developments. "With ground rent providing for a future, almost guaranteed income stream for developers and investors, it remains to be seen whether the cap will lessen incentives for future leasehold developments," Baylis explained. "To combat this, with a view to mitigating this loss, we could see an increase in the purchase price of such properties, with some leaseholders currently negotiating higher ground rent provisions with developers to reduce the amount payable at the outset."
On the positive side, Baylis noted that a capped ground rent should benefit leaseholders when acquiring the freehold title for their property, with the cap feeding through to enfranchisement calculations and reducing amounts ultimately paid by leaseholders.
Andrew Bulmer, chief executive of The Property Institute, welcomed the publication of the draft bill but stressed the importance of supporting infrastructure. "Commonhold will bring new responsibilities for homeowners, including building safety, financial governance, and upkeep of shared areas," said Bulmer.
"It is vital that commonholders, as well as leaseholders, can rely on a professional and regulated property management sector to support them. We want to see Government also deliver on its commitment to mandatory qualifications, and to bring forth regulation of managing agents, to further improve outcomes for homeowners."
The reforms also introduce changes to the enforcement regime. Under the new lease enforcement scheme, landlords will no longer be able to end long residential leases unilaterally and 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.
Goldstein expressed concern about the practical implications of these changes. "As with the removal of no-fault evictions, the Government says landlords will be protected by the courts," he noted. "However, this offers little reassurance given court staff shortages and long delays."
Dave Sayce, owner and managing director of Compare My Move, said, “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 draft bill will now undergo scrutiny by a select committee, providing an opportunity for stakeholders to shape the final legislation before it passes into law. Treasury officials had previously pushed back against the reforms due to concerns about their impact on pension funds, which hold an estimated £15bn in residential ground rents according to RFA figures.
