Matthew Pennycook MP, Minister of State for Housing and Planning, announced via X on 27 January 2026 that the UK Government intends to honour its commitment to “tackle unregulated and unaffordable ground rent charges” by legislating to cap ground rents at £250 per annum, reducing to a peppercorn (effectively nil) after 40 years.
This proposal represents one of the most significant statutory interventions in the leasehold system for decades.
In his statement of 21 November 2024, setting out his objectives for the draft Commonhold and Leasehold Reform Bill, the Minister made clear that his primary focus was to reform the leasehold system to address long-standing issues faced by leaseholders and to accelerate the transition to commonhold. The draft Bill seeks to make it easier for existing leaseholders to voluntarily convert their buildings to commonhold and to prohibit the use of leasehold tenure for most new flats.
These measures are intended to establish commonhold as the default tenure for new flats, in line with recommendations from the Law Commission and the Commonhold White Paper published in March 2025.
Proposed ground rent cap
Under the draft Bill, ground rents on most existing long residential leases in England and Wales will be capped at £250 per year. Following a transitional period of 40 years, ground rents will reduce to a peppercorn rent, being a purely nominal charge with no financial value.
The proposals build on earlier reforms introduced by the Leasehold Reform (Ground Rent) Act 2022, which abolished ground rents in many new residential leases, and reflect the Government’s continuing commitment to eliminating excessive and unaffordable ground rent arrangements.
The cap is expected to bring much-needed certainty for long leaseholders affected by onerous ground rent provisions, which have historically hindered sales and remortgages and contributed to systemic dysfunction within the leasehold market.
Retrospective effect
Importantly, the draft Bill is intended to operate retrospectively, effectively re-writing existing ground rent clauses. This marks a significant extension of the limitations introduced by the 2022 Act, which applied only to new leases.
The proposed retrospective application aligns with principles of fairness and consumer protection, ensuring that existing leaseholders are not left disadvantaged or exposed to continuing market harm as a result of historic lease structures.
The reforms have been widely welcomed by consumer groups and leaseholder advocates, particularly as they offer relief to long leaseholders whose properties have become unmortgageable due to onerous ground rent provisions, often compounded by rising service charges.
What makes a ground rent “onerous”?
While lender criteria vary, ground rents are commonly regarded as onerous where lease provisions allow for disproportionate increases over time, particularly where those increases are likely to affect the property’s marketability or mortgageability.
Typical examples include ground rents that double at regular intervals (such as every 10 or 15 years), or escalation clauses linked to inflation or other indices. Some lenders, including Yorkshire Building Society, explicitly decline to lend on leases where ground rent increases occur every 20 years or more frequently.
Ground rents may also be considered onerous where they exceed 0.1% of the freehold value, more especially where they are coupled with the inclusion of other onerous provisions, such as excessive fees for landlord consents, high contributions towards facilities, or requirements for landlord licences on assignment. Collectively, these features can materially depress a property’s value and deter both purchasers and lenders.
Impact on freeholders and valuation
The draft Bill is likely to face resistance from freeholders, institutional investors, trustees and pension funds who rely on ground rent income streams. However, it has long been common practice for freeholders to demand substantial premiums to vary onerous ground rent provisions, for example, to convert doubling clauses to RPI-linked or fixed rents, with some refusing variations altogether. This has left many leaseholders in prolonged uncertainty, a position the proposed reforms seek to resolve.
The introduction of a fixed cash cap, followed by eventual peppercorn rents, is also likely to have implications for valuation disputes and enfranchisement negotiations, as ground rent income forms part of the assessment of reversionary value and compensation payable for its loss.
Conclusion
Overall, in the interests of what is just and equitable, the advantages of the draft Bill appear to outweigh the disadvantages. The proposals mark a pivotal moment in leasehold reform, reducing uncertainty for long leaseholders facing escalating rents and significant premiums for lease variations, while advancing broader socio-economic and consumer protection objectives.
By improving mortgageability and market confidence across a substantial portion of the leasehold housing stock, the reforms are likely to have a positive impact on both the property market and the wider UK economy.
The draft Bill is expected to become law in late 2028, subject to a lengthy transitional period. As it progresses through Parliament, close attention to legislative developments, legal interpretation and emerging case law will be essential for advising clients effectively in this evolving area of law.
Key Contacts
For more information about how we can help you in relation to proposed ground rent caps please contact Mark Brassey on 020 7462 6027 or Jessica Fitzgerald on 07917891164.
