Leasehold Specialist, Dona Awano, explains the latest proposals regarding ground rent being put forward by the government, and how they will affect Freeholders and Leaseholders.
Capping Ground Rent at £250
On 27 January 2026, the Government announced its proposal to limit ground rents in existing leases to a maximum of £250 a year, and after 40 years, they will completely abolish them. This is part of the Commonhold and Leasehold Reform Bill, which is not yet law but will soon begin its journey through the parliamentary process.
It will be at least a year before the Bill becomes law as an Act, and it may undergo changes on the way. It may not come into force straight away, and the Government does not expect rent-capping to begin before 2028.
The Leasehold and Freehold Reform Act 2024
The Leasehold and Freehold Reform Act 2024 (“the 2024 Act”) received Royal Assent on 24 May 2024.
Most of the provisions of the 2024 Act are not yet in force, but the need for a flat owner to have owned the flat for two years before applying for a lease extension has now been removed.
The provisions in the 2024 Act include leases being extended to 990 years, abolishing marriage value, capping ground rent at 0.1% of the market value of the freehold interest in calculating the price of a lease extension, and limiting landlord rights to recover costs from flat owners.
These provisions will, however, not take effect until the Secretary of State makes a commencement order, and different parts of it may take effect on different dates.
Legal challenge to the 2024 Act and potential challenge to the Ground Rent cap
Some Landlords challenged the 2024 Act in the High Court because it wrongly interfered with their right as freeholders to the peaceful enjoyment of their property under the European Convention on Human Rights (ECHR). They lost in the High Court, but some of them have appealed to the Court of Appeal. It is not yet known whether the Government will await the final decision by the courts before bringing the 2024 Act into force.
Similarly, Landlords will probably take court proceedings to challenge the capping of ground rents in the same way that they opposed the 2024 Act, with the same arguments about their human rights. They may also argue that because a lease is a private contract agreed between the freeholder and the leaseholder, it should not be rewritten or interfered with by later legislation. That will all cause delay, whether any court case succeeds or not.
Have there been any other changes to rising ground rents in leases?
The Competition and Market Authority started investigating escalating ground rents in leases in 2019, and it worked with some major developers and freeholders to offer voluntary deeds of variation to their leaseholders. This removed the rising provisions and kept the rent at the original amount it was at the start of the lease for the rest of the term of the lease.
In 2022 the Leasehold Reform (Ground Rent) Act 2022 came into force, providing that any new lease granted on or after 30 June 2022 will no longer be permitted to have a ground rent. This law, however, only applies to new leases and so it does not assist leaseholders with existing high rising ground rents.
How will the £250 ground rent cap affect leaseholders?
For leaseholders with escalating annual ground rents over £250, the cap will lower the rent payable and bring financial certainty. It will also assist with saleability and mortgage-ability of such properties as generally lenders are reluctant to lend on leases with escalating ground rents.
Should leaseholders with escalating ground rents wait for the cap before buying the freehold or extending their leases?
There are many factors to be considered in deciding whether to wait till the law changes.
At this stage, there is no predicting how the Bill may be amended during its passage through Parliament, or how long it will take to come into force.
Reductions in ground rent may lead to reductions in the premiums, but not before 2028, if then. Any potential saving of money may not be worth waiting for. It would be prudent to ask your valuer for advice about that.
