The government has announced a cap on ground rents which is set to transform the market in residential leasehold properties, particularly flats.

The draft Commonhold and Leasehold Reform Bill published today will now move through the Commons, with the ground rent cap of £250 a year expected to come into force in late 2028.  

Ground rent will ultimately be reduced to a peppercorn after 40 years and means many leaseholders will see savings of more than £4,000 over the course of their lease. It will also unlock house sales for leaseholders whose ground rent terms have made their homes hard to sell.  

New leasehold flats will be banned under the legislation that the government says marks an end to the feudal leasehold system which dates to medieval times. Instead, new flats will be built as commonhold, and existing leaseholders will get the right to switch to the new system.

Stake

Homeowners would receive a stake in the ownership of their buildings and be given a stronger say in the issues that affect them, with greater control over how the building is managed and the bills they pay. The Moving to Commonhold consultation has also been launched today.

Forfeiture, whereby leaseholders can lose their home and the equity they built up by defaulting on a debt as low as £350, will also be scrapped and a new, fairer system will be introduced and replaced by a new court-led process with strict safeguards for more extreme cases.

Millions

Secretary of State for Housing Steve Reed says its helping millions of leaseholders by saving them money and giving them control over their home. He adds: “The leasehold system has tainted the dream of home ownership for so many. We are taking action where others have failed – strengthening home ownership and calling time on leasehold for good.”

There are around five million leasehold homes. Ground rents were abolished for most new residential leasehold properties in England and Wales in 2022, but they remain for existing homes.

Include

It is common for a lease to include a clause that the ground rent increases by a certain percentage or RPI inflation at fixed intervals, which can make it difficult to sell or get a mortgage for a property.

Propertymark welcomes the announcement, says Timothy Douglas, head of policy and campaigns. “We know from our research with Propertymark member agents that leasehold properties with escalating ground rent will struggle to sell, even if priced correctly. Addressing ground rents for existing leaseholders is a key step towards a fairer leasehold system. It brings existing leaseholders on par with new leaseholders, and it tackles one of the largest barriers to selling leasehold properties.”

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