Ground Rent Reform: £250 Cap for Leaseholders

The UK government has published a draft Commonhold and Leasehold Reform Bill, which includes plans to cap ground rents at £250 a year for leaseholders in England and Wales.

This proposal matters because ground rent adds an ongoing cost for many homeowners. In some cases, it also makes it harder to sell or remortgage a leasehold property. As a result, many leaseholders have pushed for reform for years.

In this blog, we explain what ground rent is, what the proposed cap means, and how the reforms could affect leaseholders and buyers.

What Is Ground Rent?

Ground rent is an annual payment that some leaseholders must pay to the freeholder under the terms of their lease.

Unlike service charges, ground rent usually does not pay for building maintenance or repairs. Instead, it forms part of the legal agreement that allows the leaseholder to occupy the property for a set number of years.

In addition, some leases include review clauses that increase ground rent over time. Therefore, costs can rise significantly during the life of the lease.

What Changes Has the Government Proposed?

The draft bill proposes several major changes to the leasehold system. Most importantly, it proposes to:

Cap Ground Rent at £250 a Year

The government plans to cap ground rent at £250 per year for most long residential leases in England and Wales that are not already covered by existing legislation. Consequently, leaseholders who currently pay more than £250 could see their annual ground rent reduced once the cap takes effect.

Reduce Ground Rent to a Peppercorn After 40 Years

The draft bill also proposes to reduce ground rent to a peppercorn rent (effectively £0) after 40 years. In other words, the government intends to phase ground rent out over time.

However, the bill remains in draft form. Therefore, Parliament may still amend the details before it becomes law.

Some leases and arrangements may be exempt or treated differently, so the impact will depend on the type of lease and any exemptions in the final legislation.

Why Does the Ground Rent Cap Matter for Leaseholders?

1. It Could Reduce Annual Costs

If you currently pay more than £250 each year, the cap could lower your ground rent. As a result, you may feel less financial pressure, especially during a period of rising living costs.

2. It Could Create More Predictable Payments

Some leaseholders face ground rent increases linked to inflation or other review clauses. A cap could help limit these increases. Therefore, leaseholders may find it easier to plan their finances.

3. It Could Support Property Sales and Remortgaging

High ground rent can affect buyer confidence. In addition, mortgage lenders sometimes view certain ground rent clauses as higher risk. Consequently, a cap may help some leaseholders sell or remortgage more easily.

That said, the impact will depend on the final law and how lenders apply their criteria.

How Does This Link to the 2022 Ground Rent Rules?

The government introduced major changes in 2022 through the Leasehold Reform (Ground Rent) Act 2022. This law restricted ground rents on most new long residential leases in England and Wales. In many cases, new leases now include a peppercorn ground rent (effectively zero).

However, many existing leaseholders still pay ground rent under older leases. Therefore, the new proposal focuses on those existing agreements.

What Should Leaseholders Do Now?

If you own a leasehold property, you should take practical steps now. For example, you can:

• Check your lease to confirm your current ground rent and any review clauses
• Keep records of ground rent demands and payments
• Get legal advice before selling, buying or remortgaging a leasehold property
  

Even small details in a lease can affect your long-term costs. Therefore, it helps to understand your position early.

Final Thoughts

The proposed £250 cap on ground rent could bring real benefits for many leaseholders in England and Wales. It may reduce costs, improve predictability, and support fairer home ownership.

However, the government has not passed the reforms into law yet. Therefore, leaseholders should stay informed and seek advice where needed.

This blog is for general information only and does not constitute legal advice. For advice on your specific circumstances, please contact a solicitor.