The ground rent cap — winners, losers and those in between
2 weeks ago | 32 comments
The proposed ground rent cap and its impact
12:00 AM, 21st August 2026, 4 days ago
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It is a well-established view that reform of ground rents is long overdue.
Under the draft Commonhold and Leasehold Reform Bill, it is proposed that most existing long residential ground rents would be capped at £250 a year and then reduced to a peppercorn after 40 years.
That sits within a wider programme of change following the Leasehold and Freehold Reform Act (LAFRA) and it reflects a broader attempt to make leasehold less punitive for consumers while preparing the ground for wider use of commonhold.
The scale of the issue explains why the government feels compelled to act: a House of Commons research paper states that there are around 3.8 million leasehold homes in England and Wales with a ground rent obligation, with around 770,000 to 900,000 leaseholders paying more than £250 a year.
ALEP, which represents solicitors and valuers working within leasehold reform, conducted its own research. 81.8% of its membership agreed that ground rents can have a negative or undesirable impact on the sale of leasehold properties and 70% said some ground rents cause problems in agreeing a mortgage, while selling a property with a high ground rent can also be an issue.
Impact on leaseholders
The government also argues, in its policy statement Addressing unregulated and unaffordable ground rent, that a future move to a peppercorn rent would remove the two-tier position between older leases and newer leases already caught by the Leasehold Reform (Ground Rent) Act 2022 and should support the longer-term move towards commonhold.
The difficulty is that not all leaseholders will experience reform in the same way. Some already pay a peppercorn/very low rent and will see little immediate benefit.
Others may reasonably feel aggrieved if they have already paid significant sums to extend a lease or acquire a freehold based on current rules, only to see neighbours benefit if a cap is introduced.
That raises questions of fairness between different groups of leaseholders which could affect harmonious relationships which is a crucial factor for a share of freehold or commonhold arrangement to succeed
Additionally, where the real problem has been poor advice, opaque drafting or inadequate explanation at the point of purchase, a cap on ground rents addresses the symptom rather than the cause.
ALEP’s survey found that 43.2% identified problems arising because the full ground rent terms had not been made clear when the property was bought, while 31.8% said leaseholders often do not understand how much the ground rent will increase. Clearly reform should be accompanied by better consumer understanding and better professional advice, not treated as a substitute for them.
Impact on freeholders
There is no avoiding the fact that the proposal is generally negative for freeholders. Ground rent portfolios are valued relative to the income they produce and the government accepts that the policy will inevitably transfer this value to the benefit of leaseholders.
That is presumably why the government rejected an immediate peppercorn cap for existing leases and instead opted for a £250 cap moving to peppercorn after 40 years – but invariably freeholders will argue that this is not enough.
Furthermore, it would be wrong to make assumptions about freeholders: they are not a single class of wealthy private individuals but include pension funds, charities and local authorities all of which will inevitably see reduced dividends.
It is important for freeholders to be prepared. Portfolios should be reviewed to identify leases with rents above or approaching the proposed cap, especially where escalation clauses are onerous. The likely impact on valuation, income forecasting and any financing arrangements should be reviewed now, prior to the proposals becoming law.
Freeholders should also pay close attention to the detail of implementation, exemptions and any secondary legislation, because the operational impact may turn on drafting rather than principle. It is notable that the government’s impact assessment expects the cap to require further legislation, guidance and an enforcement framework before implementation in 2028.
Impact on the market
From a market perspective, the benefit is that the cap should address the ongoing onerous ground rent debate, providing comfort for lenders and leaseholders.
On the other hand, that redistribution does not occur in a vacuum. If asset values are reduced retrospectively, investors will look more carefully at the security of future residential income streams. Stability and predictability are of upmost importance.
There is also a risk of creating fresh distortions. Some leaseholders will gain immediately, while those who already regularised their position under the old rules may feel left behind.
Some share of freehold arrangements may also face internal tensions if earlier decisions were taken in reliance on continuing ground rent income. Reform may therefore remove one unfairness while creating new areas of resentment.
Unintended consequences
One possible unintended consequence is pressure on the economics of future housing schemes. For example, it has been argued that ground rent income provides some compensation for developers with s106 obligations to provide affordable housing.
If that is the case, and the government continues to increase Section 106 obligations on residential development while removing this long-term income stream, a rebalance will be necessary elsewhere – potentially in land values, pricing structures or reduced headroom for affordable housing which will inevitably have wide-ranging consequences
There are practical obstacles too. The proposal still has to move through scrutiny, legislation, secondary rules and implementation. The anticipated start date of 2028 allows time for further argument over exemptions, enforcement, treatment of intermediate leases and interaction with enfranchisement.
There will inevitably be a Human Rights challenge – as we are already seeing in the case of the LAFRA. This has already led to immense delays in implementation leading to greater uncertainty in the market.
Conclusion
The sunset nature of the ground rent proposals recognises the expected backlash and challenges to the changes and seeks to reduce the impact.
While the proposed ground rent cap addresses a genuine problem and will benefit many leaseholders, the success of the reform cannot be judged solely by whether it produces an appealing headline or a quick political dividend and implementation will be the true test.
Shabnam Ali-Khan is a Partner at Russell-Cooke and a member of ALEP (Association of Leasehold Enfranchisement Practitioners).
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Demand remains strong as housing market presents a mixed picture
Member Since April 2018 - Comments: 576
11:15 AM, 21st August 2026, About 3 days ago
“Most existing long residential ground rents” will be capped “, which will not?
There will always be winners and losers. Take the old and new pensions for example ,those that bought property at the top of the market, but especially those leaseholders who have paid a small fortune to greedy freeholders who have squeezed every last penny out of their investment.
Member Since June 2013 - Comments: 670 - Articles: 1
4:56 AM, 23rd August 2026, About 2 days ago
One possible unintended consequence is pressure on the economics of future housing schemes. For example, it has been argued that ground rent income provides some compensation for developers with s106 obligations to provide affordable housing.
THIS IS NONSENSE! DO YOU ACT FOR FREEHOLDERS/ DEVELOPERS? FOR NEW DEVELOPMENTS THE INCOME WILL MIGRATE FROM GR TO PURCHASE PRICE (AS IT SHOULD HAVE BEEN FROM THE START).
Member Since October 2023 - Comments: 94
11:02 AM, 23rd August 2026, About 1 day ago
Agree completely, and that is fine going forward. The issue is the current ground rents. Those are contracts agreed by both parties who both had legal advice. For the government to step in and take from one party to give to the other is not fair.
Worse than that is that many ground rents were bought by pension funds. They are an ideal investment since they give a guaranteed return with zero risk over a long period.
Since that asset is effectively going to be worthless, remember that in 30 years time when you wonder why your pension is much smaller than you were expecting
Member Since April 2018 - Comments: 576
11:53 AM, 23rd August 2026, About 1 day ago
Reply to the comment left by Tim Peters at 11:02
I suspect these ground rent clauses were drawn up by top lawyers employed by wealthy individuals, not bread and butter lawyers/conveyancers who did not explain to buyers the probably huge financial impact this would have on them in the future. I know for a fact solicitors even bought these properties not fully understanding the impact so how could the average house buyer be expected to understand them.I would suggest these were unfair contracts in the first place and it would also be very difficult for individuals to sue their own solicitor. Yes zero risk for the pension fund but this seems to be outright greed by say pension funds at the expense of others, on top of which the house buyer receives absolutely no benefit from these ground rents. It is also not just pension funds that benefit but simply the freeholder who has already made a profit from selling the property but also adds in a requirement for buyers to purchase their insurance at an exorbitant price, another issue that needs correcting by government.
Is not £250 per annum per property enough of a return for doing zero.
Member Since October 2023 - Comments: 94
1:18 PM, 23rd August 2026, About 1 day ago
If you are saying solicitors didn’t understand the contract terms then they all carry PI insurance and it should be a claim against that.
The point remains that an ongoing ground rent was part of the deal. You can’t just unwind that without consequences.
If the residuals from ground rent had not been there, the purchase price would have been higher.
Imagine if all the “shared equity” schemes run by the housing associations were overturned and they just “gave” the property to the leaseholder 😬😱
Member Since April 2018 - Comments: 576
1:38 PM, 23rd August 2026, About 1 day ago
Probably too late to be claiming against PI insurance as those properties could have been bought 20 years ago and finding a solicitor who will take on another solicitor is also difficult.
The purchase price would not necessarily have been higher as it would be what the market could bear and you can bet those developers asked for maximum price plus a 10% new build premium then added in the ground rent clause.
Part of the deal was also shorthold assured tenancies with all their benefits but that has been unwound without any compensation for landlords.
We are not talking about shared equity schemes which as far as i know are quite fair, we are talking about greedy developers taking advantage of naive house buyers and pension funds riding on their coat tails.Why should we have sympathy for big companies and corporations ripping off the public.
Member Since October 2023 - Comments: 94
2:56 PM, 23rd August 2026, About 1 day ago
Well assuming that you have a pension YOU will be the one losing out. Developers were greedy, even houses were sold as leasehold and there is no reason for that.
Leasehold properties have always been cheaper and that was largely because of ongoing charges (service charge and ground rent)
Shared equity schemes are NOT fair. I know of one (TGP) where the costs are higher on a “social housing” flat than they are on luxury flats 1/4 mile away. And they have a ground rent which increases by far more than inflation every 5 years.
I agree about AST. Landlords costs have increased massively and it isn’t over yet. Why is social housing exempt from EPC C, and landlords have to pay licencing schemes, national databases, and the decent homes stuff coming in, or face huge fines. That’s why so many landlords are selling up. I didn’t say the government couldn’t do it, just that there would be consequences, just as there are in the PRS
Member Since October 2023 - Comments: 94
2:57 PM, 23rd August 2026, About 1 day ago
Also, for what it’s worth, the developers don’t own the freeholds (in the main). They sold them off long ago and so they won’t suffer.
Member Since April 2018 - Comments: 576
8:26 PM, 23rd August 2026, About 24 hours ago
Reply to the comment left by Tim Peters at 23/08/2026 – 14:56
Pension funds have mixed reviews and performance and how much of that ground rent rip off do they keep for themselves and to pay overpaid staff. This has been a bonanza for them to make up for their bad investments and low interest rates over many years. I have given up relying on all these experts telling me how I can retire with a fortune if I follow their advice.
I hadn’t noticed leaseholds were cheaper until recently when more astute buyers than me realised the rip off with service charges. However it is difficult to find cheap freeholds in cities and some towns.
So you think pension funds should not be forced to reduce ground rents , but you have just said Shared Equity Flats are not fair partly because they have ground rents that increase with above inflation, which is exactly what I have an issue with.
Why indeed is Social housing exempt from a lot of things the private sector has to deal with or be fined.
Member Since October 2023 - Comments: 94
8:56 PM, 23rd August 2026, About 23 hours ago
Reply to the comment left by David at 23/08/2026 – 20:26
The reason social housing doesn’t have to comply comes down to who pays. The government would have to and (don’t tell anyone but ). They have no money!
I’m not against pension funds making a fair profit because they need to if we want good pensions.
As an aside, I think pensions are a terrible idea for many people.
If I said to you, give me £100/month for the next 30 years and at the end of that I will give you “something” back but I can’t tell you how much and by the time you find out it will be too late anyway, you would never invest with me.
I own some leasehold flats, they have 999 year lease and the ground rent (which started at £150 in 2003 is now £290 (it increases by the rate of inflation every 20 years). I think that is fair to both parties as £290 today will only buy what £150 would 20 years ago. Effectively it gives the freeholder a hedge against inflation.
The £250 cap is set because of a quirk in the law that allows a ground rent of over £250 to be treated as an AST (yes I know they have gone now). There was a company in I think Manchester that bought up loads of freeholds and then “squatted” on them demanding £000’s for the leaseholder to get them back.
And your comment about massive service charges is true, but has nothing to do with the Ground Rent and if anything, the Service Charges are going to increase far more due to government policies