Proposed Changes to Ground Rent under Draft Commonhold and Leasehold Reform Bill

If you own a leasehold property – or are thinking of buying one – significant changes could be on the horizon.

The UK Government has published the Draft Commonhold and Leasehold Reform Bill, which proposes to transform how flats are owned in England and Wales. This guide explores what these changes could mean in the future for leaseholders, covering the new Ground Rent cap and the potential shift towards commonhold ownership.

At the outset, it’s worth stating that the measures in this Bill are likely to undergo significant change and modification as it moves through Parliament.

Ground Rent: what changes are planned?

Ground Rent is an annual charge that residential leaseholders must pay Ground Rent to their freeholder under their lease agreement. Unlike service charges, which pay for things like building maintenance and communal cleaning, Ground Rent doesn’t entitle leaseholders to any service in return. It’s simply a payment required under the terms of the lease.

There are roughly 3.8 million leasehold flats and houses with a Ground Rent obligation across England and Wales. Ground Rents vary massively: some are just a token amount (called a ‘peppercorn’), whilst others can exceed £1,000 per year. Some leases include clauses that allow Ground Rents to increase over time, sometimes doubling every 10 or 20 years, which can create serious problems for homeowners.

The new £250 cap for ground rent explained

Building on previous legislation, the Government plans to reform Ground Rent for older leases by introducing a cap of £250 per year. The Ground Rent Act 2022 already banned Ground Rents on new leases, but existing leaseholders have continued paying under their original terms until now.

This means that if a person currently pays more than £250 per year in Ground Rent, their payments could be reduced to £250 if the new rules are agreed.

The Government supposedly aims for these measures to come into force in late 2028. Between 770,000 and 900,000 leaseholders currently pay more than £250 per year and will benefit immediately from this cap.

But, as this is all part of a Draft Bill – none of this is fully guaranteed just yet. So you’ll need to keep an eye on the situation.

Why £250 ground rent cap?

The £250 figure wasn’t chosen randomly. Ground Rents above £250 (or 0.1% of property value) commonly trigger additional checks from mortgage lenders.

Some lenders won’t offer mortgages at all on properties with high Ground Rents, whilst others impose extra requirements that can delay or derail property sales. By capping ground rent at £250, the Government aims to remove these barriers, making it easier for leaseholders to sell their leasehold property and access competitive mortgage rates.

Ground rent will eventually become a peppercorn

After 40 years, the plan is that the cap will change from £250 to a ‘peppercorn’, meaning Ground Rent will effectively become zero. The Government’s long-term aim is to eliminate Ground Rents entirely, bringing older leases into line with new leases created after the Ground Rent Act 2022 came into force.

The 40 years transition period was chosen to balance the interests of leaseholders with those of freeholders and investors who have existing financial arrangements based on ground rent income. The Government estimates that existing leaseholders could save between £10 billion and £12.7 billion in total when assessed over the entire lifetime of their leases.

What about past Ground Rent payments?

The new rules won’t require landlords to refund any Ground Rent that leaseholders have already paid, even if it exceeded £250. The cap is only planned to apply to payments due after the new legislation comes into force.

How has the property industry reacted and what are the challenges?

Nearly everyone agrees that the leasehold system needs to be reformed – including Ground Rent – but that does not mean that there’s widespread support for the new Draft Bill. Much depends upon how it is rolled out, and how the government chooses to engage with the various stakeholders involved.

For example, the Society of Licensed Conveyancers (SLC) have expressed concerns that it could create unexpected costs and complexity for future Commonholders, commenting “Unlike leasehold, commonhold places the ongoing management, financial decision making and governance of buildings directly in the hands of homeowners, many of whom will have little experience of the legal and administrative responsibilities involved.”

For Ground Rent and the overall Bill, much remains to be agreed upon, and then further debated in Parliament.

What is the Draft Commonhold and Leasehold Reform Bill about?

The leasehold system has been criticised for a long time, and the new Draft Bill aims to introduce a range of measures to improve life for leaseholders and introduce a new way of owning a flat called ‘commonhold’ (building on the Freehold Reform Act 2024).

The Government described the leasehold system as ‘feudal’ and has committed to bringing it to an end through comprehensive leasehold reforms – at least in theory.

What is commonhold?

Commonhold is a different way of owning a flat that forms the centrepiece of the leasehold and freehold reform agenda. Instead of having a lease that runs out, people will own flats outright as a freehold.

In a commonhold building, all the flat owners are members of a ‘commonhold association’, which is a company that collectively owns and manages the shared areas like hallways, stairs, the roof, and gardens. Neighbours make decisions together about how the building is run, what work needs doing, and how much everyone contributes to shared costs.

What are the key measures of the new Bill?

Here are the headline measures which feature in the Draft Bill. Once again, there is plenty of room for these to change as the Bill is brought before parliament and scrutinised in detail.

1. Banning leasehold for new flats

Once reformed, and commonhold is operational, the Draft Bill will ban leasehold for most new-build flats, requiring commonhold sales instead. The ban won’t be immediate, and the Government is consulting on timing and exceptions to ensure a smooth transition. Existing leasehold flats will be unaffected and people can still sell or extend the lease normally.

2. Making it easier to convert to commonhold

Currently, converting to commonhold requires 100% agreement from all leaseholders, mortgage lenders, and the freeholder. This can be virtually impossible in practice, so the Bill reduces this to agreement from 50% of leaseholders. Non-participating leaseholders can remain but become commonhold association members with voting rights.

3. Abolishing ‘forfeiture’

Currently, landlords can use ‘forfeiture’ to end a lease if the leaseholder breaches the lease terms. The Bill aims to reform this practice, and to replace it with a fairer system with more proportional penalties.

4. Protecting homeowners on private estates

Many freehold homeowners pay estate rentcharges for maintaining shared facilities. Currently, falling 40+ days behind allows estate companies to take possession of a leasehold property. The Bill would ensure companies can only recover debts through normal channels like small claims court, but can’t seize a home over small, outstanding payments.

Common Questions Answered

What does this means moving forwards?

These leasehold reforms represent the biggest changes to flat ownership in decades. And

looking ahead, commonhold could offer a fundamentally different way to own a flat – with new challenges, legal complexities, and potential opportunities for homebuyers in Wales.

If you’re considering buying or selling a leasehold property, we’re here to help. Our team can guide you through the homes selling process and explain how these changes might affect your situation – get in touch with us today.