The government has confirmed that ground rents for existing residential leasehold properties will be capped at £250 per year, before transitioning to a peppercorn rent after 40 years as part of the Commonhold and Leasehold Reform Bill.
The bill will introduce commonhold as the default tenure for flats, shifting the market away from traditional leasehold arrangements. The ground rent measures included in the bill build on the Leasehold Reform (Ground Rent) Act 2022, which removed ground rents for most new long residential leases.
Responding to the news, Justin Young, CEO of RICS, said: “Today’s announcement offers greater certainty and clarity on the government’s proposed reforms to the leasehold system, including long-awaited action on ground rents. The publication of the draft Commonhold and Leasehold Reform Bill is a critical step in this process. RICS looks forward to working with members, MHCLG, and other key stakeholders to deliver the best outcomes for consumers and the market.”
Danny Pinder, director of policy at the British Property Federation, added: “While we agree that rapidly escalating ground rents should be addressed, the proposed cap will interfere with investments made by pension funds and institutional investors over many years and undermine the government’s pursuit of investment in this country.
“The various documents published by the government today make clear that these changes will have an impact on freeholders – the value of their assets and their ability to match index-linked pension liabilities – but that they intend to proceed, nonetheless. We have long been clear that adequate compensation must be provided to these entities as they have invested in good faith in order to meet their liabilities and continue to fund everyone’s pensions – today’s announcements is silent on that point.”
Caroline Wild, counsel (real estate disputes) at Forsters, said, “The leasehold system has long been lambasted and so the reinvigoration of a more flexible tenure, such as commonhold is welcome. That said, it may not be the silver bullet that leaseholders are hoping for. Commonhold is still a form of communal living and a lot of the challenges leaseholders face under the current system will persist under a new tenure.
“Introducing commonhold in phases seems to be the most workable option, especially if the government chooses to start with new developments initially, as this will enable all parties and the market to become familiar with the structure. Essentially it will operate an stress-test to understand how the mechanics could be rolled out for wider conversion from leasehold to commonhold. Careful consideration needs to be given to the legal and practical aspects of how commonhold can be implemented in complex developments, especially in schemes with a mix of residential and commercial space.”
Gavin Walmsley, leasehold specialist at Irwin Mitchell, added: “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.”
Clive Chalkley, partner and head of real estate litigation (UK) at Gowling WLG, said: “The draft Commonhold and Leasehold Reform Bill represents one of the most significant shifts in property ownership for a generation. By capping existing ground rents at £250, banning most new leasehold flats, and making it easier for leaseholders to convert to commonhold, the government aims to give homeowners far greater control and financial certainty. While this will be welcomed by many leaseholders, building owners will need to reassess their long‑term management and revenue models as traditional leasehold structures are phased out.”
Mary-Anne Bowring, co-founder and group managing director of Ringley Group, added: “The notion that freeholders do nothing is ill conceived. Yes, freeholders do collect ground rent, but a freeholder (who may also be a ManCo formed of volunteers) is also required to make decisions day to day on what level of service charge or reserve fund to hold, building safety and property management as well as deal with lease breaches, ensure alterations do not adversely affect the structure and that leaseholders do not sell their property unless their service charge is up to date, avoiding flats being sold with arrears, to name a few. In many respects, ground rent funds these matters – in the case of litigation – at least until some or all of the costs are recovered.
“At a minimum freeholders fulfil a policing duty, in reality there are over 250 pieces of legislation involved in the running of leasehold blocks, the governance will get no simpler with commonhold. A two-tier market will also emerge, leaseholders with ground rent and those without. We need to be mindful of the unsuspecting leaseholder, who now needs to understand landlord and tenant law, company law and health and safety law too. The challenge is the lack of expertise and having to navigate a complex system of multiple legal pitfalls and fines, accounting, standards, and law.”
Richard Robinson, partner at Hägen Wolf, said: “The government has published a bill which, if brought into force, will significantly affect the owners of ground rent portfolios and long leasehold flats. The major changes proposed in the Draft Commonhold and Leasehold Reform Bill include:
“Ground rents capped at £250 a year dropping to a peppercorn (effectively nothing) after 40 years. The sunset farewell to ground rents was predicted by many in the industry, given the balancing act between lowering costs for leaseholders and not radically damaging investment values for freehold investors which could, consequently, damage pension values for many.
“The abolition of residential lease forfeiture is no doubt a welcome change for leaseholders, who will no longer be subject to what many perceive as a landlord’s draconian ability to take back possession of a leased property, over potentially small debts and/or minor breaches of lease.
The bill will mandate commonhold ownership as the default position for most newly built flats. Commonhold ownership allows flat owners to own the freehold of their apartment and jointly own the communal areas of a multi-occupied building. Finance, and the burdens associated with maintaining communal areas, mean that commonhold ownership is relatively rare. The government is to consult with industry and consumers on commonhold ownership issues between 27 January 2026 and 24 April 2026. This will likely result in changes to the bill.”
