This government is determined to succeed where its predecessors failed and reform existing ground rents. In its manifesto, the government committed itself to tackling “unregulated and unaffordable ground rent charges.” We will honour this commitment through provisions in the draft Commonhold and Leasehold Reform Bill that cap ground rent at £250 per year, before changing to a peppercorn after 40 years.

This measure will apply to most long residential leases not already covered by existing legislation. It will directly address cost of living pressures for existing leaseholders, and issues with buying, selling and mortgaging properties with high ground rents. By making it easier for leaseholders to take ownership of their buildings, with conversions to commonhold made both cheaper and simpler, it is also integral to delivering on the government’s manifesto commitment to “finally bring the feudal leasehold system to an end.”

There are approximately 3.8 million leasehold properties with a ground rent obligation across England and Wales. We estimate around 770,000 to 900,000 leaseholders pay over £250 per year. In total, last year alone we estimate that leaseholders paid over £600m in ground rents. As a result of the proposed measures in the draft Bill, we estimate that leaseholders will save a total of between £10 and 12.7 billion.

The government will not be increasing anyone’s ground rent as a result of this measure. If your lease has a ground rent under £250 you will only pay that amount. Your ground rent may still increase under the terms of your lease, but it cannot be more than £250. The £250 will not increase over time.

A cash cap is simple and will provide certainty to leaseholders, freeholders and property professionals. Leaseholders will know that for 40 years they can only ever be charged up to £250 per year in ground rent, without the need for complex calculations or valuation of individual properties. This is crucial to delivering a fair and effective modern housing market on which our broader economic prosperity relies.

The cap will also address issues faced by leaseholders in respect of securing mortgages and buying and selling properties. The point at which ground rents exceed either 0.1% of property value or £250 is a common standard at which mortgage lenders have traditionally started imposing additional checks. They can therefore slow, delay and derail people’s ability to move house and limit their access to competitive mortgage finance. This undermines the housing market, reduces UK labour mobility and creates additional cost and stress for consumers.

By setting a ground rent cap at £250 (approximately 0.1% of the value of a typical flat in England and Wales) leaseholders will be protected from facing ground rent-related difficulties when it comes to moving home. This means hundreds of thousands of people with high ground rents will find it easier to move home and potentially millions of people will be free from the risk of ground rents collapsing their chain.

The measure will, over time, end the vast majority of residential ground rents, supporting our commitment to end the feudal leasehold system. Ground rents are not necessary and have already been eliminated for new leases entered into after the Leasehold Reform (Ground Rent) Act 2022 (GRA 2022) came into force. Changing the cap to a peppercorn after 40 years will ensure there is no longer a two-tier market between new and older leases. This will also support our goal of moving towards commonhold as the default model of ownership, with conversions to commonhold both cheaper and simpler.

The government believe that a ground rent cap at £250 per year, changing to a peppercorn after 40 years, is the most just and proportionate way of addressing unregulated and unaffordable ground rent terms. While we recognise that the preference of most leaseholders is a peppercorn cap, fully eliminating ground rents outright, we judged that this approach would carry significant risks, including some which might impact upon leaseholders. These include significant market disruption and an unacceptably high risk of freeholder insolvency. Our policy strikes a fair balance between leaseholders, freeholders and those invested in ground rents. It will allow investors to retain some of the value from their investments, whilst providing immediate cost of living relief to leaseholders and ultimately bringing ground rents to an end, thus ensuring a fair and efficient housing market.

The changes to ground rent are measures in the draft Commonhold and Leasehold Reform Bill. When implemented, the Bill will deliver the government’s manifesto commitments to reinvigorate and reform the commonhold model, making it easier for existing leaseholders to convert to commonhold, and banning the use of leasehold for most new flats. The Bill will give homeowners security and control over their homes through access to fit for purpose and modern commonhold ownership.

Ministry of Housing, Communities and Local Government