The government intends for ground rents to be capped at £250 per year, which will then drop to a ‘peppercorn’ rate after 40 years.
The government says a shake-up of the leasehold system will see ground rents capped at £250 a year, changing to a peppercorn cap after 40 years.
New leasehold flats will also be banned – a consultation on that proposal has been launched this morning.
The government claims over five million leaseholders and future homeowners will benefit from stronger control, powers and protections, through the draft Commonhold and Leasehold Reform Bill published last week.
It will cap ground rent at £250 a year before ultimately reducing it to a peppercorn after 40 years – marking the end of residential leaseholders paying over the top bills for no clear service in return.
The cap has been released as part of the Draft Commonhold and Leasehold Reform Bill, set out as a policy paper and is expected to take place from 2028. With an estimated ‘5m leaseholder homes‘ in the UK, ministers expect the change to benefit up to ‘900,000 leaseholders’.
As it stands 770,000 to 900,000 leaseholders pay over £250 per year, of which 490,000 to 590,000 are in London and the South.
The change will come into force in 2028.
The government says this move will ensure some leaseholders save some £4,000 over the course of their lease.
This will also unlock house sales for leaseholders whose lives have been put on hold because of ground rent terms that make their homes hard to sell.
Forfeiture, whereby leaseholders can lose their home and the equity they built up by defaulting on a debt as low as £350, will also be abolished and a new enforcement regime introduced.
The new process to make it easier for existing leaseholders to convert to commonhold will also be introduced under a revamped commonhold model.
The government says “the reinvigorated commonhold system will ensure it works for all types of developments, as well as mortgage lenders, with strong management rules in place around repairs and leadership, and greater rights for homeowners.
Those living in the building will have a say in the annual budget and how the building is run, and new protections when things go wrong. Current leaseholders will also be given the opportunity to switch to commonhold, where the majority of residents agree to it.”
Former Labour minister Justin Madders told the BBC the week prior that the prime minister could face a “mass rebellion” if the government abandoned its pledge on a ground rent cap.
He said "setting the limit at a peppercorn rate would be his preferred choice but that he could accept a £250 cap due to the “risk of elongated legal challenge”.
The Prime Minister, Sir Keir Starmer, announced the cap in a TikTok video, saying “I’ve spoken to so many people who say this will make a difference to them worth hundreds of pounds.”
The reforms will be published in the draft Leasehold and Commonhold Reform Bill, which will be introduced today (Tuesday).
Developers will also be barred from selling most new flats as leasehold.
Instead, new apartment blocks will be built under a commonhold structure, where residents collectively own and manage the building and the land beneath it.
The government is consulting on how the shift will work in practice, including limited exemptions and transition arrangements.
Existing leaseholders are not excluded, and the proposals will make it easier for current flat owners to convert from leasehold to commonhold if they choose.
Doing so will allow them to access the same rights as those buying new homes.
The government is also moving to end forfeiture, a long-standing rule that can see homeowners lose their property over relatively small debts.
In its place, a court-led process with tighter safeguards will apply only in more serious cases.
Transparency on fees
Further measures aim to improve transparency around service charges and building costs.
Bills will be clearer, routes to challenge unfair fees strengthened and landlords or managing agents held to higher standards, reducing unexplained increases.
Reforms will also extend to nearly two million households living in freehold homes on privately managed estates.
They currently pay additional charges for shared spaces, a practice often labelled ‘fleecehold’.
Ministers say they want to curb its future use and give homeowners more protection.
Other leasehold plans
Other plans include banning a century old legal power that allows harsh penalties for missed payments.
The government will also introduce standardised estate charge statements, enabling tribunals to replace failing management firms.
There will also be a proposal on whether resident-run management should become the default.
Draft legislation is long-awaited
Mark Chick, the Association of Leasehold Enfranchisement Practitioners (ALEP) director and Senior Partner at Bishop & Sewell LLP, said "the draft bill must be subject to scrutiny. This draft legislation is long-awaited, both by the industry and by the five million plus leaseholders in England and Wales. Reforming tenure structures may not attract the same attention as meeting housebuilding targets, but it remains a cornerstone of housing delivery.
The structure of ownership underpins how communities are managed, maintained and held to account and reform was long-overdue. ALEP has consistently supported the government’s intention to reform leasehold. Its position is that reform must be workable, evidence-based and developed in partnership with the professionals who will be responsible for implementing it.
We welcome the consultation on commonhold. If commonhold is to succeed as a viable alternative to leasehold, its introduction must be practical, transparent and legally robust and this will require input from the wide range of professionals involved.
There is clear political and public pressure to accelerate change, but reforms of this magnitude must balance speed with care. Rushed legislation rarely delivers clarity or certainty. The experience of implementing Leasehold and Freehold Reform Act (LAFRA) shows how important it is to get the detail right. Similar comments apply to the proposed cap and eventual sunset on ground rents which will potentially be susceptible to Human Rights Act challenges, although the government has been at pains to set out its approach in a policy statement for this very reason.”
Andrew Bulmer, chief executive of The Property Institute (TPI), said “we welcome the publication of the Draft Commonhold and Leasehold Reform Bill, which will give homeowners more control of the estates and communities they live in and reduce high and escalating ground rent costs for many leaseholders. These are important steps forward in improving the lives of homeowners in England and Wales.
Commonhold will bring new responsibilities for homeowners, including building safety, financial governance, and upkeep of shared areas. Our members regularly work with residents who manage their own buildings, two-thirds of the buildings TPI members manage are resident-controlled. We embrace the move to commonhold and stand ready to support future generations of commonholders to live in safe, well-managed homes.
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.
Some of these reforms will be complex, and there will be important details to scrutinise, for example, on a replacement for forfeiture, to ensure buildings with arrears can continue to function. It is very positive that the Select Committee will first scrutinise a draft of the Bill with all stakeholders.”
The Residential Freehold Association (RFA), for example, describes the move as an unjustified interference with existing property rights.
It adds that this would seriously damage investor confidence in the UK housing market and deter the wider institutional investment sector.
Now Gavin Walmsley, leasehold specialist at Irwin Mitchell, says "this is one of the most significant shifts in the leasehold system, with wide-reaching repercussions. 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 [these] reforms raise complex issues for lenders, freeholders and leaseholders.
The draft Commonhold and Leasehold Reform 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.”