"We're capping ground rents at £250" - what does this mean?

What is the proposed £250 ground rent cap?

As part of the UK Governments plans to “bring the feudal leasehold system to an end,” Keir Starmer has promised to cap ground rent at £250 a year. The reform will be introduced under the Commonhold and Leasehold Reform Bill, aimed at tackling unregulated and unaffordable ground rents and could come into force in late 2028. The Leasehold Reform (Ground Rent) Act 2022 has already banned ground rents on new leases granted from 30^th June 2022.

How will the ground rent cap affect leaseholders?

This news will be highly welcomed by leaseholders, whether they are wishing to sell, purchase or remain in a leasehold property:

Purchase/Stay

The reform, if implemented, will immediately reduce financial pressures on leasehold owners by capping the ground rent at a maximum of £250. Further, after a 40-year transition period, it is proposed for ground rent  to be reduced to a peppercorn which will increase the long-term value of leasehold properties.

Sell

For those wishing to sell their leasehold property, the reform will make marketing “unsellable” leasehold properties with increasing ground rents more attractive to both buyers and lenders.

According to the English Housing Survey 2023-2024, the average leaseholder pays £304 per year in ground rent fees. This differs by region and property type, with London being significantly higher than the Northwest, and flats being higher than houses.

Impact on mortgage lending

As it stands, some mortgage lenders do not generally lend on some leasehold properties with a ground rent that exceeds 0.01% of a property’s value. For example, a flat worth £251,000 with a ground rent of £250 would exceed the threshold required for Banks such as Nationwide and HSBC.

How will the ground rent cap affect freeholders?

Freeholder concerns lie heavily not only in relation to their own revenue, but the UK’s investment reputation and building safety.

Reduced income

Landlords will face an income loss with the reform having an adverse effect on revenue where the current ground rent exceeds the new £250 cap. For example, for a Freeholderwho is receiving a ground rent of £500, their annual revenue will be halved. To maintain profitability, this will require Landlords to pivot their focus to alternative revenue streams such as property management and service fees.   

Why the new £250 ground rent cap is creating backlash

The reform has also been met with aversion by the Residential Freehold Association, who view the proposal as a “wholly unjustified interference with existing property rights”. The concern being that the bill would “tear up long-established contracts and property rights, which are pillars of the UK's investment reputation”. In regard to investment, the proposal is likely to have a wider economic impact on Pension Funds with charging ground rent being one of the ways in which Pension Funds pay out their investors.

The Commonhold and Leasehold Reform Bill was published on Tuesday 27^th January and will now move into pre-legislative scrutiny and could come into force in late 2028. However, even if the Bill proceeds through both the House of Commons and House of Lords and receives  Royal Assent, there is still the possibility of Freeholders challenging the act with a judicial review based on a breach of their Human Rights as they have done with the Leasehold and Freehold Reform Act 2024.

Get expert leasehold advice

If you’re unsure how the £250 ground rent cap will affect you, contact our specialist residential team in Essex and Suffolk for clear guidance.