Government proposes cap and eventual ban on residential ground rents in latest leasehold reforms

The government has announced plans to introduce a ground rent cap of £250 per year, before moving to a peppercorn cap after 40 years, for long residential leases which are not already subject to ground rent restrictions. This is another step in its reform agenda to strengthen protections for residential leaseholders.

To recap, the Leasehold Reform (Ground Rent) Act 2022 (GRA) banned ground rents in most new long residential leases granted after 30 June 2022, but did not tackle ground rents in leases which existed before that date. The newly announced measures would extend the regulation of ground rents to leases granted before the GRA came into force. Eventually, this would lead to a total ban on ground rents in most residential leases, regardless of when granted, avoiding a two-tier market between newer and older leases.

Key points from the announcement

• The measures are contained in the draft Commonhold and Leasehold Reform Bill, published on 27 January. The bill amends the GRA to introduce the £250 annual cap, changing to a peppercorn after a transitional period of 40 years, for most long residential leases.
• The ban would only apply to ground rent payments falling due after the date the measures take effect. Landlords will not be required to reimburse tenants for any ground rent paid above the cap before that date.
• There are limited exemptions for some leases, including business leases, community housing leases and home finance plan leases.
• The cap and eventual ban will have significant adverse consequences for freeholder owners and ground rent investors who stand to lose their ground rent income, being left with the reversionary value of the property. The government believes the £250 cap and long (40-year) transition period offers a fair balance between leaseholder protection, and freeholder and investor interests. Even so, the government may face legal challenges from investors and landlords for interference with their existing property rights if the measures in the bill remain.

For more details on the government’s reasoning, including an analysis of the financial impact on freeholders and investors, see the MHCLG policy statement: Addressing unregulated and unaffordable ground rent.

When will the measures come into force?

The government has indicated that the measures could be implemented in 2028, but the timing is far from certain. The ground rent provisions form just one part of the much broader Commonhold and Leasehold Reform Bill, which will significantly reshape the leasehold system in England and Wales. This lengthy piece of legislation will first be scrutinised by the Housing, Communities and Local Government Select Committee, before it is formally introduced to Parliament later this year. Given the scale and complexity of the reforms, the timeline could shift.